6/01/2009

ABC Flat nearly complete on SPX

I last posted about the overall market here. My record has been pretty bad over the course of this rally, but I'll offer some additional analysis now that we've popped to new trend highs. I believe the 950-975 zone should contain price action, and we should very shortly start a downtrend towards new lows.

The above chart shows the E-mini S&P 500 futures (/ES) over the past 2 years. I think we've seen an irregular flat ABC correction since the November 2008 lows, where Wave-b and Wave-c both overshot the bounds of Wave-a. This excellent scenario prompts the bulls to capitulate the end of Wave-b, and the bears to capitulate at the end of Wave-c because a "breakout" occurs. Ultimately, I think this recent bullish breakout will fail because prior to breaking above 942 (the December 2008 high), a triangle consolidation formed. Triangles normally occur before the final thrust in the trend. It all works out perfectly: the final thrust is Wave-5 (terminal) of Wave-c, it brokeout above the previous high (942), and now we have MACD divergence. When you take a look at current sentiment, it's not hard to imagine why a top is near.

2 comments:

SteveInChicago said...

Matches up very nicely with the more conventional-looking expanded flat on the $COMPQ.

The one concern that I have is that we're at the line in the sand for $SPX, since running flats are not supposed to break the previous high. The high of that day was 943.85, and a close over that would lead me to believe that the move up so far is wave A of either a flat or a Zigzag that will go to much higher levels.

Narayana said...

Actually, irregular flats do break the previous high. I don't think this is a running flat.