Sunday, September 4, 2011

MTU Weekend Ed.- Taking Shape (9/2/11)

Given the price actions over the past two weeks, it’s probable that the proposed benchmark low (8/12/11) occurred at the end of a potential truncated small-degree fifth wave on Aug 22 (Chart 1, blue). A number of factors offer support.

(1) The truncated fifth wave ended at the mid-channel line of an impulse wave decline since the early July high. This sometimes suggests a truncated fifth.
(2) The subsequent rebound to the past week’s high, while technically valid, appears to be too deep for it to be a fourth wave either with respect to the early July high (Chart 1, blue) or to a lesser extent, to the nominal high (Chart 1, purple).

If the assessment is correct, a breach of the mid-August low would signal that a fresh sell-off likely has started from the past week’s high. The next leg of decline is either wave (C)-down of a larger correction wave [X]-down based on the bullish count (Chart 2, red) or wave (3)-down of [1]-down of cycle wave c-down based on the bearish count (Chart 3).

Chart 4 offers near term bullish and bearish counts based on the larger counts outlined above.

The bullish count suggests and almost requires quick upward reversal (Chart 4, blue and Chart 3, blue).

Wave (2) of the bearish count (or wave (B) of a larger correction) could morph into a combination where this past week’s high is wave W of the combination (Chart 4, red) - but it is not required.

Finally, Chart 5 updates that the market is again hovering over previous support and resistance (see Support and Resistance Matters (8/26/11).) A potentially eventful week is ahead of us - key U.S. speeches and the German court's decision.