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Tuesday, September 20, 2011

Tuesday Market Action

Strange day.  Shortly after opening, the SP500 climbed for about an hour and a half, hitting the intraday high of 1220.39 at about 11:15.  The index then hovered between 1215 and 1220 until after 2:00 p.m., making at least 10 more attempts to pierce 1219-1220.  Then exhaustion set in and it fell for about an hour and a half and lay quivering between 1202 and 1204 for the last 15 minutes of the day, and closed about a point and a half below the opening.  Weird near-symmetry for the day.

On Friday, I noted a resistance band at 1230, but 1220 has been tough to pierce.  Here is a look at the entire counter-trend move (daily bars) since the end of wave III at the August 9 bottom of 1101.54  Support and resistance at 1140 and 1220 are indicated with red lines.   The counter-trend channel is in purple.

By this count, wave IV had a fairly simple A-B-C three-wave structure.  A count showing wave V developing is also included.  If this is correct, subwaves i and ii are complete, subwave iii of 3 has just begun, and a steep fall should follow soon.

The alternate possibility is that wave IV is still working out its many wrinkles.  As outlined in Chapter 1 of Elliott Wave Principle, by Frost and Prechter, R. N. Elliott identified 11 different patterns that corrective waves can take, and several of them are still potentially in play.  Hence the "or IV" and an arrow pointing to the near future.  One of these possibilities is a triangle.  If that is what is happening, it can take several more days, and the green line should be a top boundary.  To my knowledge, there is no bullish way to read this pattern.

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