Saturday, October 27, 2012

MTU Weekend Ed. - Target Zone (10/26/12)

Approaching target zone and at potential support

Following further weakness over the past week, SP500 has approached the proposed initial target area of 1390/1400 (Chart 1). Please see Dip (10/19/12) for additional analysis.

The structure of the decline since the October 18th high suggests a cluster of potential support around current levels.   A potential end to the six-week pullback is also likely especially when NDX has already retraced about 60% of the prior upswing and the correction appears to be adequate from a time perspective.  A rise above Friday's high could signal the next upswing.  Chart 2 illustrates.

[green] The proposed wave C-down is a zigzag, with [c]-down being a contracting EDT and already completed.
[red] The proposed wave C-down is a zigzag, with [c]-down being an expanding EDT still missing the final downward subdivision. A likely target is around 1400 under this scenario.
[blue] The proposed wave C-down is a regular “five”, still missing wave (v)-down. The low should be above 1390 and likely around 1400 since wave (v) cannot be larger than wave (iii).
[purple] Note that the purple count in Chart 2 highlights a more bearish scenario, but it is also subject to a potentially deeper rebound first.

Reconciling NDX price action, a long term perspective

A major challenge to our bullish interpretation (i.e. our anticipation of a terminal advance suggested by our Hope Rally model) is the pronounced weakness in the Nasdaq 100 index (NDX), its recent failure to break above a 10-year channel (Chart 3) and a visual five-wave decline (albeit an overlapping one) from its September high.

Chart 4 illustrates the prospects of a final upswing to complete the major advance since the 2010 low.

[blue] The advance since the 2010 low is a contracting EDT. The recent weakness is [b]-down of E-up. Wave [c]-up of E-up is likely to achieve the typical overthrow.
[green] The advance since the 2010 low is a regular "five." The recent weakness is wave 4-down. Wave 5-up will bring about fresh recovery highs, likely meaningfully higher than that under the aforementioned EDT scenario.