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Friday, May 29, 2009

Honing in on a P2 target

First, let me say that I think the market likely hit either a "D" or "X" wave peak today. In either case, we are looking at a 5-3-5 zig zag down. How bearish and big the zig zag only the market can determine.

Lets just say that 880 holds and perhaps we get an E wave early next week and the triangle pattern stays true (good chance it will). What does this triangle Intermediate (X) wave mean?

I quote Elliott Wave Principle pg 51: "A triangle always occurs in a position prior to the final actionary wave in the pattern of one larger degree, i.e., as a..............or the final X in a double or triple zig zag combination."

(As a side note, I recently couldn't find evidence of an X wave triangle in EWP and said so, but I was mistaken obviously if the book says it can be then it can)

So if the Intermediate sized (X) wave triangle is indeed the corrective (X) wave pattern, it means the market will likely see another Intermediate-sized (red) 5-3-5 zig zag UP to 1000 take place (as expected). AND this next ABC zig zag will be the FINAL zig zag up pattern in Primary wave 2. That is per Elliott Wave theory rules on triangles.

So I have developed a chart based on this theme. The upper target is just above the 38% retrace spot. About 1041 SPX. Time? Sometime this summer.

I must say charting this P2 I had assumed it would experience a 38% setback along the way but it has not. There seems to be a "sense of urgency" with P2 as if it knows it only has a small window in time in which to retrace to 1000 and just above before social mood decides its had enough and throws in the towel again.

Afterall, EWI posted a chart recently showing the SP 500 already trading at a trailing four quarter P/E of 60! Now I don't much pay attention to P/E's and don't use them, however as EWI says, any indicator, even if a lagging one, that shows extreme moves, its worth noting.

P1 took about 17 months to complete. If P2 took 4+ months than your looking at a Fibonacci time of about a 25% ratio which would be acceptable.

This Intermediate sized triangle is important. Because if it stays a triangle and a breakout comes, it means the next ABC Minor sized pattern will point the way to the top.


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