I've been looking at SPX this morning and the evidence that we may just
have seen the end of wave 5 of 5 looks compelling. If so we have just
made a major top. Let's consider the evidence.
Firstly I was
looking at ES this morning and I see that a possible H&S pattern is
forming with the right shoulder on that pattern developing now. Looking
further at it and dropping my preconception that a rising channel is
forming I now see that recent action fits much better with a rising
wedge:
Now
I am fairly convinced that we are in wave 5 of 5 up from the low in
March 2009 here, though we may instead be looking at a wave 3 extension
for the bearish interpretation. What we are looking at here is a
textbook wave 5 termination pattern and I have an example from EWI of
one here for comparison:
Looking
at the SPX chart for the wave 5 of 5 up since the Feb 5th low, I have
marked in the wave count for what I think now looks like the highest
probability count unless we make a new high today:
To
add further weight to this scenario, jacksoo pointed out this morning
that we hit significant resistance yesterday on a line drawn from the
November ES high:
This
all adds up to a compelling scenario that this wave top may well now be
in. There is still some room for upside in the rising wedge of course,
and there is also a little wiggle room on the resistance trendline from
the November high, depending on how it is drawn, but not much. If that
H&S finishes forming today then I think that it will signal an
excellent short on a break of the neckline at 1201.5 ES, at which stage
the rising wedge will also be at breaking point. If the lower trendline
of that rising wedge, currently at 1203 ES, is broken on an hourly
basis, then that will also be a signal to position short.
If the
wave top is in, then we should now at minimum now see an abc retracement
that should take SPX back below 1100. If the move since March 2009 has
been a rally rather than a cyclical bull market though, then the top may
be in, and we could then be starting a move towards a new low.
One
caveat of course is that wave 5's can extend too. As ever in this
strange market, some caution is required. Good trading everyone!
