Saturday, October 12, 2013

MTU Weekend Ed. - Showdown (10/11/13)

The U.S. government has been forced to partially shut down for two weeks now due to funding dispute. The debt ceiling is also looming. Stocks rebounded strongly late last week on news of a temporary fix in the works. The market faces a showdown week ahead.

The rebound off this past week's low presents a strong impulse wave that likely has more room to rise. The blue count in Chart 1 tracks Friday's high as wave three of the proposed five wave advance. The less bullish red count in Chart 1 will be invalidated with a higher high on Monday, unless the market turns down over the weekend over unfavorable development in negotiations.

With the rebound, we are now able to put the Sep/Oct price actions into perspective at the next higher wave degree. See Chart 2.

[blue] The Sep/Oct sell-off is an ABC structure. The current rally is wave 1 of a new upswing. A new all-time high in SP500 is likely before the October low is breached.

[green] The current rally is wave (X) which is a zigzag. This count survives only if the market reverses over the weekend.

[black] The September high in SP500 is a major top. The impulse wave A or 1-down is followed by a complex wave B or 2-up as marked. Wave B or 2-up takes on a flat-like structure of flat-flat-five or three.

Given the October new highs in RUT, MID and a new recovery high in NDX, odds appear to favor a new all time high in SP500.

However, the Dow has breached its late August low during the sell-off. it's prudent and potentially necessary to allow for minor near term adjustments to our larger tracking counts discussed in Shutdown(10/4/13) and Monthly Outlook Update(9/27/13). See Chart  3 to Chart 5 below.




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