Staying with prospect that, wave c of b of (b) could be forming a rising wedge—a special Elliott impulse wave whose five component waves each subdivide into threes (i.e. a-b-c), rather than in typical 5-3-5-3-5 fashion—the following dissects the component five waves of wave c of 3 of c forming since September 4th (the first trading day of the month).
Just to review, wave (b) is the middle wave of an a-b-c "zig-zag" up from March '09 bottom. Wave (b)'s completion is believed some months away, awaiting the approaching completion of wave b [up]—this, a "zig-zag" forming off early-October 2011 bottom—followed by wave c [down] whose five waves lower are projected to challenge the S&P 500's rising trend line dating back to the index's 1974 bottom, thus targeting the S&P 500 to fall somewhere in the vicinity of 900-ish. Wave c of b of (b) is expected soon to meet an overhead, dynamic line of resistance (discussed on Friday) suggesting its completion will not see the S&P 500 rising much higher from its present level.
Very typical intra-day RSI behavior accompanying the component five waves of wave c of 3 of c. Whether wave iv of c completed on Tuesday remains to be seen. Well enough is that, relative strength registered during formation of wave iv of c has weakened in contrast to that registered during formation of wave ii of c. Upcoming should be one final lift higher forming wave v of c, and wave 3 of c of b of (b) should be in.
Assuming an Elliott "rising wedge" in fact is forming off early-June 2012 bottom, then some days/weeks subsequently should be spent forming waves 4 and 5 of c of b of (b), upon whose completion the next Lehman moment should begin simmering on course to becoming a full blown boil threatening to explode the pressure cooker containing the trans-Atlantic banking system. During that fright-filled interim wave c of (b) should form and deliver the worst sell-off since March '09 bottom.
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
Nothing is set in stone. Nor is the stock market's path of least resistance always known. More often than not, there are no stock index option positions recommended.
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