The recovery picked up pace and has now retraced 78.6% of Minuette (a). Looking at the details of the recovery, it is looking impulsive as well and so far 9 waves in total can be counted with a clear extended third wave. This could be part a of an a-b-c zig-zag correction. This would mean that the correction is not over yet and the stock market will make a down move in the form b wave and finally the c wave which should bring the S&P 500 above 1368.
The wave that is labelled as Minuette (a) could also be a flat correction which is the final leg of the expanding triangle. The implication is that we might see another high above 1378.
S&P 500 Elliott Wave Analysis Chart 08 Mar 2012
The hourly MACD has broken through the zero line and has touched the bottom boundary line of the contracting triangle. If it had been turned down at zero line, it would have confirmed that the S&P 500 is in a correction and is likely to head lower. But since it has broken through the zero line, there is a possibility that the S&P 500 might just head higher and reach another high above 1378.
Another possibility is that a leading diagonal is panning out with a 5-5-5-5-5 pattern. If this was the case, it indicates that the S&P 500 has turned down and the peak of 1378 would not be visited again in the near term.
There are a number of things that’s going on at the moment and we need the waves to play out a bit more before deciding on the most likely outcome. For now, the scenario painted in the below daily chart is still valid.
S&P 500 Daily Elliott Wave Chart 08 Mar 2012
S&P 500 Fibonacci Confluence
The S&P 500 broke through the Fibonacci band and has closed above it. This is also another bullish indication.
S&P 500 Daily Fibonacci Chart 08 Mar 2012
S&P 500 Volume and MACD
The volume is thin again. The bulls are not ready to commit or don’t have enough strength at the moment. The daily MACD is turning up which is typical for a correction.
The S&P 500 made a relatively big move in the last session. It was down by some 1.54% or 20.97 points to close at 1343.51. This move is an impulsive move as can be seen quite clearly. It could also be the c wave of a flat a-b-c correction. So it could still move higher from here. But looking at the technicals, the anticipated break out of the hourly MACD finally took place and I had said that it would be a vigorous break out. It has also broken the zero line on the hourly MACD which has provided support since 28 Dec 2011.
S&P 500 Elliott Wave Analysis Chart 06 Mar 2012
This wave on the S&P 500 has also broken the lower boundary of the expanding triangle. Looking at the wave structure and the hourly MACD, I anticipate a correction once market opens to 1350 before at least another down leg to 1335 region. This would complete the a wave of the a-b-c correction as depicted in the daily chart below. Note that I’m expected another leg up in the form of Minute [z], which should take the S&P 500 to 1450 or even 1500 region, once this correction is over.
S&P 500 Daily Elliott Wave Chart 06 Mar 2012
S&P 500 Fibonacci Confluence
The S&P 500 dropped right into the Fibonacci band at 1338 -1362 and recovered to 1343. The 1338 level seems to have stopped the down move. But I expect that to be broken in the next session.
S&P 500 Daily Fibonacci Chart 06 Mar 2012
S&P 500 Volume and MACD
The volume is relatively higher that the previous days and is marginally higher than the recent average. Daily MACD is turning down more vigorously. It is heading for the zero line (refer to the 2nd chart on top for the S&P Daily Elliott Wave Chart).
If you have been following this blog long enough, you would know that I primarily track S&P 500 and Asian bourses. Very seldom d0 I cover the Nasdaq or even the DOW. The reason for this is because S&P 500 is made up of a much larger number of counters whereas the Nasdaq is mainly Tech based and the DOW membership is much smaller. Analysing the market is very much an analysis of sentiment and human mood and in order to have a really good analysis, the index used must have a large representation. That’s the reason why I primarily cover the S&P 500.
At this juncture, the analysis on the Nasdaq is an interesting one and gives clues as to the larger scheme of things.
Firstly, let me present the chart for Nasdaq. This chart is from the peak of the tech bubble in 2000 at just above 500o points. By the end of 2002, the Nasdaq lost a huge chunk of its value and closed just above 1100 points. This move looks impulsive and I’ve labelled this as Primary [A].
The Nasdaq then recovered to 2885 and it took 5 years for this recovery. This is a clear corrective wave although it could be counted as five wave impulsive move as well.
What followed next looks like an unmistakable five wave impulsive move. So we have 5 waves impulsive move down (Primary A) followed by a correction and the correction in turn was followed by another five wave impulsive move. This is all normal and expected, but, the thing is this move did not go beyond the initial impulsive move (the Primary A which ended at 1108). Okay then, we’ll call the second impulsive move as the first sub wave of a larger five wave move. This means that this is wave 1 (highlighted by the pink circle). What should follow is correction in the form of wave 2 which should not go beyond the beginning of wave 1. But the wave 2 has gone beyond the beginning of wave 1.
Nasdaq 10-Year Elliott Wave Chart 11 Feb 2012
So the move that we thought was wave 1 is obviously not wave 1. So, what is it then? One likely possibility is that this move was a truncated zig-zag. I’m not sure about this though as I did not come across this concept in Elliott Wave references so far. We could however, label the sub waves 1-2-3 as a-b-c with sub waves 4-5 as the sub waves of the next move. That would solve this mystery. The implication of this is that the next move is not an impulsive move but a corrective move. This means that the sell down from 2000 to 2002 is still being corrected. Which could mean that another five wave down can be expected after the correction is over which should take the Nasdaq to below 1000 points.
Nasdaq Medium Term Outlook
In the mean time, let’s take a look at the medium term outlook. We are at the tail end of the Primary [B] which has taken the form of Intermediate W-X-Y. The Y has sub divided further into Minor W-X-Y. I believe that the Nasdaq is in the midst of Minor X.
Nasdaq Elliott Wave Chart 11 Feb 2012
Now, the Minor X is likely taking shape as a triangle with two possibilities. One is that it is an contracting triangle and the other is that it is a expanding triangle. In the case it is an contracting triangle, we should see it heading lower soon to complete Minute [e] and Minor X. If it is an expanding triangle, it should continue to head higher to around 3250 to complete Minute [d] of Minor X.
Either way, I’m expecting the Nasdaq to break the horizontal resistance line (in blue) and head higher to minimum target of 3250. The next target is 3600.
After that, we can expect the Nasdaq to head low and possibly reach levels below 1000 points.
Earlier in this post, I mentioned that the analysis of Nasdaq is interesting and gives clues to the large scheme of things. Well the analysis that the likely medium term outlook is a higher high for Nasdaq, means that there is a good chance for the S&P 500 make a higher high as well.
In my Medium Term Analysis of the S&P 500 I am expecting a correction in the form of Minute [x] and thereafter I am expecting the S&P 500 to move higher in the form of Minute [z] to complete Primary [B]. That would fit in well with the analysis of Nasdaq. The Minute [x] and Minute [z] in S&P 500 will coincide with Minute [x] of Minor X and Minor Y in Nasdaq. That means that both S&P 500 and Nasdaq are going to form a new peak before heading lower in deep territory.
But remember that anything can happen in this market. So prudence and proper investment strategy (which includes cut loss) based on individual risk appetite is of utmost importance. This is the time to worry about Return of Investment and not only about Return on Investment.
Elliott Wave Analysis 