Saturday, November 3, 2012

MTU Weekend Ed. - Potential Upswing (11/2/12 Close)

Bottom line - A breach of the October low in U.S. benchmark stock indexes would be less likely to extend. In other words, a correction low is likely in place or in sight.

U.S. stocks rebounded after approaching the proposed initial target area (Target Zone (10/26/12)). SP500 had risen +2.21% from its recent low to Friday's high in a potential five-wave advance (Chart 1).

Friday's sell-off appears to be
[1] retesting the prior "neckline" resistance yet to turn into support (Chart 2, red line), which is bearish.
[2] retesting the October low which is anticipated.
A resumption of the rebound will likely confirm the end of a six-week pullback.

More importantly, with the breach of the "neckline" in late October having turned out to be a false breakdown and given the corrective wave structure highlighted in Chart 2, any breach of the October low is likely terminal (i.e. less likely to extend).

As a result, our base line assessment is that a correction low is likely in place or in sight.

The near term wave structure of NDX appears to support our observation. Chart 3 presents the immediately bullish blue count and the soon-to-be-bullish red count on NDX. Please also see the section titled "reconciling NDX price action, a long term perspective" in Target Zone (10/26/12).

In terms of bearish tail risks, top bearish counts are extended corrective decline (double/triple threes), nested 1s/2s or an LD off the orthodox high. While these bearish scenarios are probable, they shall remain alternative counts for now.