[Update 3:15PM: This 5 up looks a hellavu lot better than the previous 5 down we drew from 1099 to 1056.]
[Update 2:46PM: I showed you earlier basically EWI's count http://2.bp.blogspot.com/_TwUS3GyHKsQ/TEWGlWUtlgI/AAAAAAAAGdc/K8avirh3RnE/s1600/WLSH.png You guys that read me a lot know I hate the Minor 1 placement because its subwave pattern is quite irregular to say the least and violates many guidelines (but no rules).
I keep coming back to the leading diagonal count because it makes the most sense out of all this mess. And how would it look in my proposed timeline of 8 months and the market back near 666 lows in January 2011?
Well here is the vision. Problem is, I need a new push above 1099 for our [c] wave. Perhaps this bullish turnaround is the [c] wave "kickoff". We await to see if it traces a solid 5 up.
There is not a requirement for 1131 high to be taken out although a LD is capable of deeper rertacing. (think doubletop at 1131 area maybe on certain indexes) In fact having multiple non-confirmations would be a nice way to say its "done".
You can see if the market could just bust above the 1100 area one more time, we could draw a new base channel that would look good and make more sense.
I'll keep harping on this LD stuff until the market makes up its darn mind. But reading market internals, the market's selling is waning and not yet increasing in a Minor wave 3.
[Update 2:15PM: Yeah that was bullish and big reversal on internals too. Looking to see if the market is going to form a 5 wave move up that would certainly wind up looking better than the 5 wave move down from 1099 to 1056.
The lows today held and selling completely dissipated. [c] or [b] of 2 is still in obviously in play. Awaiting for some more market clues and the last 2 hours could be crucial. Its schizo at the moment...
[Update 11:09AM: Wedgie override.]
[Update 10:56: A tiny wedge.]
[Update 10:20AM: An important juncture has been reached. The market needs to hold today's low support or it has the potential of tumbling down much harder. There is a double positive divergence on this hourly RSI which suggests a move to 1080-1084 range is coming. But if this is Minor 3 down, the power of the bear should in theory be capable of wiping that out. But for now the divergence and wave structure appears
to be a subwave ii at least.
[Update 9:56AM: Well the new low strengthens the bear count but we could see a bounce here. There is a ridiculous gap down that if covered, could be a wave subwave ii event.]
[Update 8:30AM: The dollar is hard charging up. The wave pattern ABC to Intermediate (2) could very well be complete. Remember the overall outlook for the dollar is that it will soar in its own Primary wave  up and it has already traced (1) of  so the next uptrend should be very strong.
Long term dollar? I am looking for it to head back toward its mid 1980's peak or even higher.
But for now this is just a 4 hour candle... the dollar needs to break out of this down channel. Its certainly oversold on a daily basis.
[Update 8:AM: Ok here is some food for thought and a recap on the overall situation in the wave world and how it currently applies to markets.
First, I'd like to reiterate that I will stick by the expanded flat Supercycle wave (a) interpretation (yes its Prechter's primary count) until it proves no longer to be useful.. And that isn't an outlook that will "change on a dime". It will take a re-conquering of "Lehman Day" http://danericselliottwaves.blogspot.com/2010/04/battle-of-lehman-day.html to do that and even then I might not be convinced. Let me say that nothing that has happened over the last 18 months has changed that outlook. In fact the outlook has been reinforced by having such a sharp Fibonacci 61.8% rebound primary wave .
So using the logic of EW theory, this is supposed to be Primary wave  down in a five primary wave cycle wave c. Looking at the longer term chart it makes sense that the market is looking to take back what it gained, at least from 1990. Impossible? Well once support is lost that big blue box doesn't have much support in there. This is just another technical chart after all. Also note the biggest darn head and shoulders you may ever see.
With all that said, primary wave  should start to behave like a wave  which means overall it should be more extreme than the 2008 crash event in totality. We aren't going to go straight down of course (in sections yes it should). But overall I'm looking for an Intermediate wave (1) of primary  to take the markets back down toward or beneath the March 2009 low. (Target date: January 2011)
With that said, it brings us to our current market.
Again using the Wilshire for form and trendlines, one can see the steep base channel that has formed for waves 1 and 2. This is basically EWI's count and although it is not a textbook wave structure for Minor 1, it certainly does not break any hard rules. So by that, we cannot get too cute here as you can see if we do, the market will bite us in the rear end in a Minor wave 3 down.
I suppose the market will eventually form an acceleration channel that breaks through the base. I have been thinking a lot that the base channel seems very steep which is one reason why I keep imagining a touch point higher may be coming. But it would take a breakout over the blue channel to do so.
I am not one to argue with the market here. If the steep blue channel is what the market wants, then thats what it gets. The steepness does certainly support my call for 700 SPX or lower by January 2011.
Also note the now-forgotten neckline on the H&S pattern (left shoulder not shown). If the market is to break out of the blue channel (thus reforming a new H&S possibly) then a test of this neckline makes sense.
So I cannot say with certainty that EWI's count is correct or incorrect as certainly there are a few interpretations but this one at this moment, doesn't break any rules. Time will tell and it shant be too long. But I won't argue with it for now and let the market do the talking.
The danger is of course that it is correct. However I think the next subwave (i) should take the market under the recent low. Then shortly thereafter a "recognition event" would take place.
The key is sentiment of course and that is the toughest to judge. Are we ready to move lower in a big way?
But we do have market internals that will help us. Note the downtrend line on the down volume indicator. I also showed this recently in hourly form on this NASDAQ chart http://2.bp.blogspot.com/_TwUS3GyHKsQ/TENIl1wtx4I/AAAAAAAAGa8/7Tbrbp25qcc/s1600/COMP.png Should this be Minor 3 proper, look for a huge sustained break up over that line. That should be a clue if it comes.
So certainly we can give the [b] wave of Minor 2 (as shown in the NASDAQ chart I just linked) more wiggle room. But we are in a downtrend here and fighting it may be just as bad as fighting the P uptrend. Thats the approach I am taking.
Thats a pretty solid break under.
The whole sideways thing looks like a wave four. There is a smidgen of double positive divergence on MACD.