I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

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: http://danericselliottwaves.blogspot.com/2009/09/elliott-wave-update-28-september.html#comment-17743801

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.
blog comments powered by Disqus