Bounce Nears Completion ~ The Risk Averse Alert

Monday, February 22, 2010

Bounce Nears Completion

With the volume of shares exchanged persistently diminishing during the past week's market advance, odds remain we are amidst a counter-trend rally in a larger decline from mid-January top. This counter-trend rally likewise appears near completing...

SPX 5-min

Very typical RSI accompaniment justifies the above Elliott Wave count. Thus, a well-anticipated a-b-c correction of five waves down from mid-January is seen nearing its end.

Up to now this corrective wave unfolding over the past couple weeks has been labeled wave 2 of five [larger] waves down from, again, mid-January top. Yet it's possible the corrective wave thus far unfolded is but wave a of 2 ... leaving wave b [down] and c [up] still to develop before wave 2 is completed.


Take the S&P 500's 200-day moving average into account in considering a possibly prolonged corrective wave developing over the next several weeks...

Now, waves b and c of 2 might form entirely above the 200-day moving average. Contrarily, wave b [down] might take out the 200-day, with wave c rising right back up to it. This latter scenario in particular would be a fine set up for a steep sell-off to follow (i.e. wave 3 of five waves down from mid-January top ... tentatively slated to challenge March '09 low).

It's also possible wave 2 is nearing completion, taking a simple a-b-c form. Thus, wave 3 down soon might begin unfolding. Maybe the first and second waves of wave 3 will hold the S&P 500 above its 200-day moving average ... or maybe not.

The point is there are several possibilities once wave c of an a-b-c corrective wave unfolding over the past couple weeks is completed. Obviously, all signs still point lower (and how).

Fast Money
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