Rising Wedge Dissection ~ The Risk Averse Alert

Wednesday, September 12, 2012

Rising Wedge Dissection

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.

SPX 5-min

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.

Fast Money
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