The Ending Diagonal Reaches a Perfect Target
Starting in February we were looking for the Markets to put in a high via an Ending Diagonal. We kept on updating every turn within that pattern and issued a price and time target for its completion months ahead. The target was for 1320/1330 SPX around May 8th to 12th.
The Markets delivered a high of 1326 on May 8th and then dropped in the rapid fashion that typically follows a completed diagonal triangle. The S&P went from 1326 to a low of 1245 on May 24th. I must say that it surprised me to see the Diagonal target (the point of its origin) reached so quickly! (The guideline is for a total retracement of the pattern in 1/3 to ½ of the time elapsed during the pattern.) On May 24th I posted and emailed our members a chart showing that we were within a few points of making a possible bottom. It surely must not have felt good to read that and take a long position under the selling pressure we had, but it worked like a charm once again. If any of the members went long when that email went out, they bought THE bottom! From there, the S&P's have already put on 35 points by Friday's close.
What now? I think both bulls and bears might be a little confused after these violent swings. If we did indeed put an important high in place, we are bouncing in a corrective rally.
There are 2 counts that can apply to this bounce. One says that Friday's close was or is close to ending this corrective move up. The other says we still have a little more work to do before completing an ABC rally. (The rally so far likely being just wave A)
Can we make a new high instead? We can after shaking out many weak bulls but odds are against it from these levels. I have decided not to get into all the possibilities in these articles as the market may have me change directions by the next morning. I don't marry any short term wave count but instead go with the flow of the market, avoiding a problem many Elliotticians have. So there is a way to make a new high but we cannot lose focus of the kind of selling we just had. At the moment, we are looking at this as a bounce that rolls over in a week or two and then the market resumes its correction down. As it unfolds, we will be updating any count or CIT we have. Upon a move above 1300, we will start to become suspicious, as out current target is 1280 to 1300.
The bottom line is that 1242 has been the number that will tell me that something longer term has changed. As we now know, the first test of that was this week. What it does with it next time will clue us in to the future of this market.
Below is the OEX chart from the last few updates. As you can see, the Diagonal worked out perfectly. Now we are watching how this abc correction handles the lower trend line of the Diagonal. A bearish setup would be that it rallies up to it as a kiss back before selling off once again.
The next chart shows you what we have achieved at our forum since we opened six months ago. The chart clearly shows where and when potential larger turns were being expected. Many of these were called months ahead of time.
If you would like to see more of this type of work, please visit us at www.tradingthecharts.com. We also look forward to seeing others post their work as well, so please come by and contribute.