Friday, 10 October 2014

S&P 500 beginning strongest & longest portion of current decline?

4 hour chart of the S&P futures illustrates the most likely Elliott Wave count for present market behaviour, and suggests that the strongest & longest portion of the current decline is just beginning. Sometimes the most difficult thing with technical analysis and more specifically Elliott Wave is to actually believe what you are seeing. There are other ways to count the current decline but this one best fits the Elliott Wave Principles rules and guidelines. From September's peak, we have seen a sequence of first and second waves, now wave three is likely beginning, and then we'll see a matching sequence of fourth and fifth waves. If this count turns out to be correct, there are good odds that wave three will turn out to be much longer than I have drawn it.

Zooming out, The recent bearish cross by the moving averages on the daily chart backs the view that the current trend is only just beginning, so potentially has a long way to go. Clearly there have been several false starts to down trends this year, and we may be seeing another false start here. So long as the high from Thursday's US session holds, there is no reason to back away from a near term bearish stance.

Zooming out still further, to a long term view of the US stocks, in this case the Dow. A chart I've shown many times, as I consider it important. The Dow has formed a giant bearish megaphone pattern. If the megaphone is the correct interpretation of market behaviour, it will result in a decline to below the 2009 low. But wait, aren't we seeing an upside break from the megaphone? Not in my view, as the internals of the market (volume and breadth) are weak, making it more likely that we are seeing a throw over / false break. Also the market is now probing back below the top line.