Tuesday, 17 July 2012

When the wave counts start to get confusing.....

When the wave counts start to get confusing, when there is no clear impulsive move upwards or downwards, when important support or resistance levels are not broken, when the market moves sideways and in a tightening range, I step back and try to reset my views and start looking things from a wider point of view. Today I have chosen those two weekly charts on S&P, since the last sessions have not given me the food for thought I was expecting.Waves need time to unfold and most of the time our nature is so anxious to see the waves unfold that we lose track of the bigger picture.

The bigger picture is what I 'm trying today to analyse and create a roadmap for the following weeks as I think August will be a volatile month. The recent decline in S&P from March highs is considered by most ellioticians as impulsive. The 5 wave decline is very clear as a textbook example. I like it when things are that clear and simple. The basic argument amongst wave analysts is whether this is part of a correction or the start of a larger impulsive move down similar and even bigger to the 2008 decline. Each scenario has its strengths and weakensses. I do not favor the doomsday scenario that many believe in, where S&P could decline towards 100 level, but also I'm very sceptical on the way the rise from 2009 is unfolding. Back to our first chart, it is important for any bullish scenario for the index to hold above 1123. My first level of alert would be a close below 1340 and the break of 1310. A move below 1278 will probably accelerate the decline as it did in 2008. 

I could justify a correction towards 1150 but the overlapping nature of the wave structure from 2010 until today, is worrying for any bull. Bulls will feel confident as long as the market continues to make new higher highs and higher lows. Pitchfork support as depicted in the above chart will try and support the index at 1310. Bears on the other hand have let the index retrace just above 61,8% of the 5 wave decline and their aim is to break 1310 important support. Any move above 1375 will increase the chances that 1422 will eventually be broken.

Concluding, the market is either making another top around these levels or is gathering power, by moving sideways, in order to make new highs in August. 1310 and 1375 are important levels that if broken will give more chances to either the bearish or bullish scenario.

Thank you for taking the time to read my thoughts.

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