Saturday, November 10, 2012

MTU Weekend Ed. - Post Election Plunge (11/9/12 close)

In Potential Upswing (11/2/12), we observed that "a breach of the October low in U.S. benchmark stock indexes would be less likely to extend."  Here we are, amidst the post-presidential-election plunge. Its implications are likely as follows.

First, the post-election plunge likely completes a seven-wave pullback from the September high (Chart 1-SPX and Chart 2-NDX).  The visual seven-wave decline is reasonably close to a text-book style double-three counter trend correction.

Second, the proposed upswing ahead is likely the final major subdivision of the Hope Rally.  For example, the next upswing would be C of (C)[Z]b in SPX (Chart 3) and 5 of (5)[Y]b in NDX (Chart 4).  Moreover, given the relatively deep retrace so far, a truncation in the proposed upswing in one or more indexes (while not required) becomes probable.

Third, to some extent, the price structure of the recent sell-off resembles that of a larger correction in 2011 (Chart 5).  From this perspective, the market is approaching the final point number 7 of the "fractal."

In terms of bearish counts, the most sensible count is a nested 1s and 2s. It requires more convincing follow-through to the downside given the overlapping nature in senior indexes.