A huge sell down on HSI (1054.54 or 5.25%) and the HSI closed just a whisker below 19k at 18963.89. Although the 19k has been breached, I believe a correction of this down move is to be expected tomorrow unless the US market sells down in a big way today. Nevertheless, the market is not looking good at all. The volume was not really heavy which is an indication that sellers are not done yet. Based on volume, I would say that more downside is quite possible if 19k is broken after a correction.
The S&P 500 completed an abc correction in today’s session. I believe that this is the completion of Micron wave (2). This move came within 2 points of the beginning of Micron wave (1). The next move would be the Micron wave (3-4-5) which is expected to bring the S&P 500 to 1215 region. That would be right above the neck line in the below chart (in amber). This would give the move a rest before piercing the line to the bottom and embarking on Subminuette (iii). Resistance is at 1205 and 1195 region.
This move would be invalidated if it moves above 1263.
We are at a point where it is quite difficult to predict whether the S&P 500 will head higher or lower. The probability for the move in either direction is about the same. Let me start by presenting the Primary Elliott Wave Count for the S&P 500.
The Primary count says that the S&P 500 is still in Minor wave E of the Expanding Triangle (of Primary wave [B]). Minute waves [a] and [b] are complete and Minute wave [c] is in progress which is expected to bring the S&P 500 to a low of 1040. This is the Primary count since it fits in well with the idea of wave E of an Expanding Triangle. A lot of people have labelled Minuette wave (a) as Minor wave 1. I have problems counting this as an Impulsive wave because it simply does not look impulsive. There is also no confirmation of volume. It fits much better as a corrective wave.
S&P500 Elliott Wave Chart Primary Count - 3 Nov 2011
This Minor wave E could have also ended at 1074 on 4 Oct 2011. The move up since then is also looking corrective rather than impulsive. The move up can be counted as a double zig-zag (w-x-y) with an Expanding Triangle for wave x. This whole move can be counted as Minor wave W of Intermediate wave (C).
If the move down that is progressing rebounds strongly from 1205 region and closes above 1293, it would be a strong indication that it is indeed Minor wave X and Minor wave Y is underway to bring the S&P 500 to 1550 region. One has to be careful here as the rebound from 1205 could also be Minuette wave (ii) of the Minute wave [c]. So it’s better to wait for the S&P 500 to break 1293 before going long. But if the 1205 region is broken on the way down and S&P 500 heads lower than 1195, that would indicate that the Minor wave E is still in progress to bring the S&P 500 to 1040 region.
The Alternate count is the extreme bearish count. With this, the move down since 02 May 2011 is labelled as Intermediate wave (1). I have a problem with this count as the Minor wave 1 is looking corrective rather than impulsive. This count states that either Minor wave 5 of Intermediate wave (1) is in progress or, Intermediate waves (1) and (2) completed and Intermediate wave (3) is in progress.
S&P500 Elliott Wave Chart Alternate Count - 3 Nov 2011
Volume would be a good indication which can give us strong clues as to which wave is in progress. If indeed Intermediate wave (3) is in progress, the selling volume should be heavier that Intermediate wave (1).
Elliott Wave Analysis 