Sunday, May 5, 2013

MTU Weekend Ed. - Extension (5/3/13 Close)

SP500 made another all-time high this past week after a weak run above its 2007 top in early April. The early April breakout in SP500 exceeded its 2007 top by 21.26 index points or 1.35%. The latest breakout is similar so far - Last Friday’s high (1597.60) is 21.11 index points or 1.32% higher than the early April record high (1597.35). Thus, we make the assessment about the quality of the breakout as we did last time in SP500 Breaks Out (4/12/13). “The bullish push by short covering from the initial batch of tight stops was weak. New inflows and running wider stops are required to push the index higher.” One bright spot this time for the bulls is the moderately higher volume.

Over the past month, we have been discussing probable extensions in the advance from the November 2012 low. The subdivisions higher in recent weeks are confirming. As Chart 1 illustrates, SP500 counts well as an extended impulse wave or a double three.

We also noted in Monthly Outlook Update (4/26/13) that “the remaining subdivisions in case of probable extension and the net upside potential appear to be limited.” Chart 1 and Chart 2 illustrates.

If the red wave C in Chart 1 is a zigzag, Chart 2 suggests that the index is practically there.

If the red wave C in Chart 1 is a regular impulse wave which coincides with the blue wave 5, Chart 2 suggests that only waves [iv]-down and [v]-up are absent.

The proposed red wave C or blue wave 5 can certainly also extend. However, odds are gainst such extension since the blue wave 3 is an extended wave. In addition,

[1] the blue wave 5 reaches equality with the blue wave 1 at around 1632.
[2] the red wave C reaches equality with the red A at around 1624.

SP500 closed at 1614.42 on Friday.