Wednesday, April 3, 2013

Charts 04-03: Irregular flat

The steep drop today suggests that that wave 3 to a new higher (than 1576) high is very much over, and that we have actually been in the 4th wave since the news first broke on Cyprus.

The pattern for this would be an irregular flat 4th wave, where the B subwave actually makes a new high.  A and B of 4 are in, and we began C of 4 down yesterday.  I am looking for a bounce tomorrow and a move up to around 1564.

Friday, with a slew of data and no POMO scheduled, could be a real doozy.  If 1 of C of 4 was 23 pts, then 1.618x that would suggest a 37 pt drop.  Yes, probably all of it on Friday.  Wave 4 would then finish up mid-next-week when we reach the lower boundary of the channel.

What makes this pattern particularly perverse is that someone looking for a top at 1573 will indeed see a five-wave impulsive move down, without realizing that it is actually the C wave of a correction.  Ouch.

But we wil still have the "Jaws of Death" trendline just above us, so we can race up to tag it into the May 1 FOMC or so.  The midline of the channel actually looks to be just after May 1st, so maybe the FOMC is the "good news" that ends the rally a day or two later.  Or what the Fed has to say, takes a day or two to sink in and draw a broader reaction from the markets.

Something like that.

SPX 04-03

1 comment:

Permabear Doomster said...

An interesting outlook.

I could almost go with it, except the weekly charts would argue against it.

You might be right, but...I'm guessing no.

Your point though about Friday, just about viable, that'd probably kick the VIX to 18/19s.