In my New Year’s update my preferred count was a 4th wave low followed by a 5th wave new high to complete a picture perfect 1st wave up. This clearly didn’t happen. However, although it was my alternate count, I did alert readers of the fact that “Since there are still only 3 waves up, we could also be dealing with a larger intermediate ii wave, where the recent high was a b-wave, and the mid-December low an a-wave; which would mean in that case that price is now in a c-wave down to lower lows.“. And now this possibility has become more likely, because the 4th wave is clearly off the table as the current retrace is simple too deep for a 4th wave of the same degree.
After careful re-examination of the charts over the weekend, one can count the recent high equally well as 5 or 3 waves up from the mid-December low. With a 62% retrace of the recent up move, the market has now reached an inflection point:
- either minor wave 1 peaked last week, and minor wave 2 is about to bottom, or,
- we are dealing with the aforementioned larger wave ii
Thus, it is now time for the bulls to put up or shut up since a deeper retrace (76.4% still acceptable) for a minor wave 2 would make the first count less and less likely. Indeed, a 50-76% retraces for a 2nd wave are most common, with the 62% being “ideal/textbook”. In the hourly chart above (click to enlarge) I’ve outlined both counts.
You can see that the NYSE, as well as SPX (not shown), have reached the classic 62% retrace level. A lower low is OK, but not by much. In the case of the 2nd count, intermediate ii extending, for the NYSE we’re then likely dealing with a flat correction where minor waves a, b, and c are about equal in length. Minor wave c would, in that case, target ~10,300; somewhere close to the yellow trendline, which has been in place since the 2011 Primary II low. Note that for the SPX we would be dealing with an expanded flat, since in this case, minor b ended above intermediate i (SPX 2094 vs 2079). In an expanded flat wave c is often 1.618x a, which in that possible case means we can expect intermediate ii to bottom in the SPX 1920 area. The beauty of both counts is, however, that ultimately, and longer term (most of 2015), we will be looking at new ATHs, likely to 2300+. The market can now simple decide how to get there:
- Possible dip a whee little bit more and then rally straight into wave 3 of 3,
- or do an oversold bounce first for a minute b wave, then drop hard for a minute c to the aforementioned price targets, and then rally even harder for most of the rest of the year.
Either way, should be fun!
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