Sunday, October 14, 2012

MTU Weekend Ed. - Correction approaching its end (10/12/12)

In 3-up OR C-down (10/5/12), we observed that “The debate at the moment is whether the pullback from the September high was over or is extending. The direction in which the market breaks out of its Oct 2-5 range (1439.01-1470.96 in SPX) likely determines the relative odds.”

Subsequently, SPX has breached 1439.01 first. The proposed wave C-down has now tested the 50-day moving average (currently at 1428.38) and a short term lower channel line. SPX closed the week at 1428.59, above its 50-day SMA. Positive divergence can be seen on the 30- and 60-minute charts. See Chart 1. Relative strength can also be seen in the advance-decline statistics associated with the current SP500 constituents (Chart 2).

primary count
On balance, our primary assessment is that the 4-week correction since the September high is now approaching its end. As discussed before, the best candidate this pullback is a 4th wave with its degree to be determined (Chart 3, blue 4 or green [iv] of 3). Note that the current decline has also tested the lower channel lines projected for the proposed 4th waves.

Technical note - Can the proposed wave C extend? Yes.  It's possible that the current low is (b)-down of [ii]-up of C-down, for example, with bulk of C-down to come.  The anticipated rebound will help establish important pivots.  

bearish alternative
If point 5-up of our Hope Rally model did peak at the September high, the pending low is likely the first three-legged pullback of point 6-down (i.e. wave W of point 6-down) (Chart 3, red X). A wave X rebound is expected.