Tuesday, 16 October 2012

S&P in new impulsive wave or countertrend bounce?

S&P bounced upwards in an impulsive pattern. From 1425 a  5 wave move completed at 1440. The most probable wave count is depicted in the 10 minute chart. Alternate 5 wave counts exist, that give higher targets for the completion of this upward move. 5 waves are followed by a 3 wave countertrend move and another 5 wave move towards the direction of the first 5 waves. Many believe that the market has topped and a new downward sloping trend has started. If this is true then wave 1 down has ended yesterday at 1425 and is pulling back upwards for wave 2. Yesterdays impulsive upward move could very well be wave A of 2. Practically this means that a small decline towards 1435-30 is expected and another up move towards 1450 will end corrective wave 2. Our analysis gives more chances that at 1425 we have seen an intermediate bottom and that a new upward move is starting. For this scenario to be confirmed we need impulsive waves upwards to continue and resistance levels at 1460 to be broken. The market has reacted at the area we expected the downward correction to end (red scenario of A-B-C in 60m chart). The blue scenario depicted in the 60m chart is the bearish least favourite scenario. Short positions should be considered after wave 2 has ended near 1450-60 resistance area, with 1470 as a stop. This bearish scenario will be confirmed if resistances are not broken and if the market moves downwards impulsively and breaks 1420-10 support.

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