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Wednesday, November 4, 2009

Patterns on the Indices

What I want to do in this post is to not look at the counts but to look at the channeling and patterns. The count is very ambiguous. What looks nice and clean and perfect on one index (say the SPX) is not even remotely viable on another index (say the Dow).

I continue (and will always) maintain that the *best* count (and the one in retrospect best explains the past price action) is the one that works on all 5 major indices (SPX, INDU, COMPQ, NDX and RUT). These are economy wide indices that should move in unison. Moves among the indices are exaggerated based on sector weightings, but by and large they move together.

In my last few posts I talked about the leading diagonal on the Dow and how that should coincide with a Wave 1 bottom. And I have been leaning towards the 1-2, 1-2, 1-2 count option. There is a slight fly in the ointment with the last 1-2 as the 2 went past 1 on RUT.

But I want to come back to the patterns.

1) This move down the last 2 weeks has channeled very nicely. No move down since March 9 has channeled this well which helps to confirm my belief that this is a trend change, part of the new down trend (start of P3)

2) The move on Oct 29 is the termination of a diagonal on all the indices. On the Dow, it is a full leading diagonal. And the reaction up on the Dow is extremely pronounced (about 65% retrace of the move down from the top on Oct 21). On the rest of the indices, the pattern looks like an ending diagonal, and the move up is less pronounced (commensurate with an ED retrace vs. an full wave LD retrace). Good this makes sense.

3) The move today on the Dow looks like a bearish continuation triangle. On the rest of the indices it looks like a reversal wedge down. In both situations the pattern is suggesting further downside from here

4) One potential issue however on the RUT. The RUT had moved more strongly today and has actually broken the up trendline of the channel. Very small violation, but a violation. This could be the early signal that the move down is done and we will be correcting up for the next several days

Assuming observation 4 pans out, then Nov 2 is the true end of the first Wave (Minute degree probably) of P3.

If so, I have a crazy (a tin-foil hat, you might say) way to count it. But more on that tomorrow. I am too tired right now.

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