Friday Market Action - 9-09

The SP500 gapped down about 16 points near the opening today.  This looks very much like a third wave of a third wave at some small trend level, consistent with yesterday's big picture chart.   Resistance at 1205 proved formidable, and the index is also now vigorously retreating from the upper boundary of the down-sloping trend channel.  No telling how long it's going to take to play out, but this is almost certainly the early stages of wave V down.

The current small wave might be small enough to finish by day's end.  Either way, we'll have a weekly chart after closing.

UPDATE: It's now about 3:00 p.m.  Today's downside move was even more vigorous than I anticipated, NOT QUITE enough to poke through the bottom of the up-slanting purple channel (see yesterday's link, above) The low for the day hit this line exactly.  though w Of course, we have yet to break Kevin Cook's 1140 resistance barrier.  I'll have more commentary after the close - this looks like a beautiful impulse wave.  Meanwhile, here is a very nice primer on how the wave form and MACD work together.

UPDATE II:  Here is a real-life attempt to show how MACD and the wave form work together, per the linked vid.

On Tuesday, MACD extremes and index peaks moved similarly (green trend lines) and up - the advance was robust.  But on Wednesday, their movement was contrary (red trend lines) - the rise was running out of steam.  Through yesterday and part of today, the movement was similar and down.  This afternoon, they turned contrary, and this leg of the move down is over.

The heavy brown lines to the right of the chart mark the .312, .5, and .618 retracement levels for the anticipated corrective wave, which should run for a day or two next week.  Note that the highest of these is just about enough to cover the open gap of the early morning drop today.  That is a common scenario. This idea is based on a correction of the two-day wave from the 1204.4 top.  Another possibility is that the correction will be relative to the entire 5 wave sequence from the 8/31 high of 1230.71.  That seems less likely, would move the targets points up to about 1180, 1190, and 1200, respectively (not shown on chart,) and would take longer to complete.

If this chart looks familiar, it's because of its similarity to last Friday's.  Chart.  Post.  Both Fridays started with a "third wave within a third wave of subwave 1 down," though today's seems to be at a lower trend level.  Note also that the weekly high of 1204.4 was just about enough to fill in the open gap shown on last week's chart. 

Notable features:
- The 5 waves of an impulse are pretty easy to read.
- The three waves of a corrective pattern can be complex and difficult to untangle.
- A sideways sequence, such as we've had since the 1101.54 low exactly one month ago, can be deciphered by studying the wave pattern.
- Wave patterns repeat similarly, not identically, at different levels of trend.
- Similar wave patterns tend to occur at different times.
- Support and resistance levels are significant - as are their failures.
- Trend channel boundaries provide support and resistance levels that change every day.
- Retracements tend to reach levels identified by Fibonacci ratios.
- Retracements tend to fill in open gaps.
- MACD trends can either confirm or conflict with index trends; these characteristics are significant and can aid in deciphering the wave count.
- In real time, it can be quite difficult to identify which level of trend you're dealing with.

Every one of these features has been exhibited by the SP500 index over the most recent two weeks.