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## Monday, September 28, 2009

### A Little Projection Math

On my last series of posts (for about the last 2 weeks) I had notes on my charts that said I believed P2 would terminate around 1100 on the SPX. Also I recently made this comment on Daneric's blog:
Excellent analysis Dan, thanks! I agree, those are the two leading options in my mind too, and you have given all the options / arguments for both. Nice work man. We either go down from here, or we have ~4% more upside, then we head down. Either way, heading down is not too far off relatively speaking.

I was asked to justify my prediction.

No problem, here it is.

For the Final Minor C Wave, my Wave calculations are:
Minute Wave 1 = 978.51 to 1039.47 = 60.96 (Aug 18 - Aug 28)
Minute Wave 3 = 992.25 to 1074.77 = 82.52 (Sep 3 - Sep 17)
Minute Wave 5 = 1041.17 to ???? (Sept 25 - ????)

A common way to estimate the length of a 5th wave is to take the price from the beginning of Wave 1 to the end of Wave 3 and multiply by a Fib ratio. Common ratios are 0.382 or 0.618, whereas 0.500 is less common.

Wave 1 beginning to Wave 3 end = 1074.77 - 978.51 = 96.26.

0.382 * 96.26 = > Wave 5 end at 1078.50
0.500 * 96.26 = > Wave 5 end at 1089.30
0.618 * 96.26 = > Wave 4 end at 1100.85

A few observations. Wave 3 / Wave 1 = 85.52 / 60.96 = 1.354 ~= 1.382. Valid fib relationship. Moreover, because Wave 3 was not highly extended in comparison to Wave 1 (say 1.618 or 2.618), chances are Wave 5 will not be a truncated / short wave.

So I lean toward the 0.618 estimate which puts my projection at 1100.85 or ~1100 which is what I have been stating.

As a side note. There exists a small breakdown gap from Oct 3, 2008 @ 1099.23 to Oct 6, 2008 @ 1097.56. This particular Fib estimate would coincide with the closing of that gap.

.... And just to complete the request, 1100 is about 4% higher than the current price (1063) on the SPX.