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Thursday, March 12, 2009

The Case for A Wave 4 of (5) Expanded Flat

This post is for Kenny's consumption and anyone else who is into the nitty gritty of EW chart wave theory.
The very pronounced, big and wavy 5 wave move up from 666 is an unusual move off of a (supposedly temporary) bottom. And it has made a clear 5 wave move indeed no matter how you slice it. Indeed it is also channeling nicely.
If we consider this to still be somewhere in the latter stages of Intermediate wave (5) down to new market lows, its a strange spot for it to be in. There can only be a few logical reasons for this structure:
1. It is not a 5 wave move, meaning the first wave was a truncated wave of the previous move down. Evidence: NASDAQ does not have this structure and made new lows on the SPX's wave 2 spot. Divergence between the indexes is not a healthy way usually to interpret wave structures.
2. It is a C wave in an expanded flat. This would suggest wave 3(5) actually ended at 692.
3. It is the front half of a really really big 5-3-5 zig-zag and this is the start of Primary Wave 2 rally and we are going to see 804 before the market makes a big bear-type retrace (back to 750 or so)
4. It is nothing and I should get some sleep.

I will say this: If it is an expanded flat, here is what EWP, page 83 says about the psychology of "C" waves: "Advancing C waves within upward corrections in larger bear markets can be mistaken for the start of a new upswing, especially since they unfold in 5 waves." I may be caught up in C wave psychology right now and indeed its working on me.
One last item to note: Note on my chart I show a massive inverted H&S. It broke above the neckline today and upside target is 804. Just another reason I am feeling bear market doubt. However if it is an expanded flat, these things can reverse to the downside rather suddenly. So keep on your toes. Down volume as always is always a key.


  1. Dan,

    There was another EW Guy who mentioned this a few nights ago but he thought that 734 had to hold for this to be in play for what it's worth.

  2. Also I forgot to add this is also called a bearish Butterfly pattern as well. Look up Butterfly pattern on Google for a definition.

  3. Dan whats your view on the Nasdaq having broken above its wave 1 of 5 low??

  4. this is it..... perfect chart..... thank you.....

    and yes, we have reached another turning point.....

    many blessings.....

  5. I'm not an expert. I just call what I see and let you and Kenny do the heavy lifting, but I do get lucky simply finding the patterns and where they point. A larger falling wedge formation that the SPX seems to be obeying is what I am following. This is the drive up to D touch, then down to E for the bottom. I am a pattern seeker and then apply indicators for confirmation and direction and then confirm with you and Kenny, hey, it works. Simplistic, but it is a valid pattern. See my $$ G SPX 60m 6 Months cart. Right now the VIX daily and weekly indicators agree with a stronger move up. No divergences yet. Thanks for all you do.

  6. How can minute wave iii be right? The 3rd wave in that wave is the shortest.

    Thanks for your work.

  7. excellent work....great analysis....phil

  8. Hi Dan,

    What's your view now? Are we definitely in P2 and a multi-month rally to S&P 1000? Or are we soon heading back down to retest S&P 666?

    Thanks, I really appreciate your work.

  9. I see 666 being easily tested next week. Still won't be enough to bring in the whales. These guys won't enter until 600 area. For now this thin market can't hold a rally.

  10. Anon, I have to look at everything this weekend. It rallied to the targets I expected. But some things don;t sit right. I'll post this weekend.

  11. THank you Daneric. Beautiful charts and anaysis.

    If we manage to hit 800 area, would it be safe to say we ended P1 ?


  12. Just want you to know I saw it Dan, thanks.

  13. A rally from 666 to 800 does not seem like a largest enough P2 retracement if P1 was from 1,500+ to 666. I am missing something?