SP 500 Triangle Continues

Oct 22, 2008: 4:58 PM CST

We’re nearing the Apex of the Triangle formation that’s formed on the 30-minute and 60-minute chart of the S&P 500 (and other market indexes) so it’s worth going inside this formation and seeing what might lie ahead.

S&P 500 60-minute chart:

Right now – if you don’t follow Elliott Wave – we’re in a simple triangle consolidation pattern, and are reaching the apex of the formation which will converge about the 930 index level.  Most triangles break-out 66% to 75% of the way to the apex (point where the two trendlines converge).  The pattern will be invalidated should price travel through the apex without a price break-out in either direction.

Notice how price has actually broken slightly beneath the lower trendline in the momentum oscillator – that’s not a necessarily bullish development but – as of this writing – we’re not out of the formation yet.

If you follow Elliott Wave, then we’re completing sub-wave D of the Elliott Triangle pattern which is forming sub-wave 4 (retracement) against the larger trend on the daily and weekly charts.  According to EWT, we have sub-wave E yet to come and then a breakout is more likely to occur to the downside.

Let’s see this structure on the daily chart:

S&P Daily Chart:

The entire structure you see is Wave 3 of the larger impulse on the weekly charts (beginning with the October top).  Wave 3 – the largest and most ‘powerful’ wave – is subdividing down to its own 5-wave impulse… but let’s not get ahead of ourselves.

Wave iv (the current wave) is subdividing into a Triangle pattern (which itself is 5-waves) as a retracement against the prior downthrust.  Notice the new momentum low made on wave iii.

IF this is the dominant structure, then we probably have one more mini-wave up before the triangle breaks to the downside, testing the prior 850 level at a minimum and exceeding it possibly.

I have to share something a little humorous of a political nature.

I was reading a post on a website the other day where the headline read “Stock Market will Fall – McCain is finished before election day” or “Stock Market Move Down will Doom McCain” or something of that nature.  I had to read it.

The premise was that we’re in an Elliott wave 4 triangle (as I displayed above) and that the price will break out to the downside just before the election which will doom John McCain’s chances at the Presidency.  I kept envisioning my own headlines:

“Elliott Wave Triangle Dooms Sen. John McCain” or “Triangle Breakdown Defeats McCain” or something along that nature.

That sentiment is clearly biased and also holds quite a few assumptions.

First and foremost, that the Elliott pattern is valid and that price will break down sharply following sub-wave E.

Second, that – even if that happened (which does seem likely) – then a down market will help Senator Barack Obama and doom Senator John McCain.  Who knows?  Maybe a severe move down in two-weeks time will lead to a sudden call for leadership and experience and shift the dynamic. It’s so hard to tell!

Even if it is the case, it’s still – at least to me – a humorous way to interpret Elliott Wave Counts and then extrapolate them to the real world.

At any rate, I thought it was a an interesting use of Elliott Wave theory that I wanted to share with you all.

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Published by Corey Rosenbloom of Afraid to Trade.   Click to receive the Afraid to Trade Feed.

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5 Comments

5 Responses to “SP 500 Triangle Continues”

  1. Andrew Stanton Says:

    Since wave iii was longer than wave i; the most common expectation for wave v is equality with wave i. If wave e of the triangle ends around 950 then the target for wave v will be 750. Yikes!

  2. Anonymous Says:

    How low can we go on SP?

  3. Corey Rosenbloom Says:

    Andrew (and Anonymous),

    I’m of that view but I hesitate to make it public in a blog post because it’s so bearish. I see us in a larger ABC Correction of the prior long bull market, and just that structure alone takes us down to test the 2002/2003 lows or slightly below them. What’s slightly worse is that it may be an expanded flat, where the B wave went slightly above Wave 5, and C will go slightly beneath Wave A as a result (the 2002 lows).

    You’re right as well – since 3 is the longest/strongest, expect Wave 5 to equal Wave 1 which does take us to beneath 750.

    Let’s see if this plays out as expected.

  4. Tom Says:

    Very fascinating risk(?)Chart I found. http://www.safehaven.com/archive-402.htm

    Never seen such before and am still digesting and considering since I too remain very bearish but try to have an open mind.

  5. Andrew Stanton Says:

    After today’s action there are 3 possible outcomes: today’s low marked the bottom of wave d of the triangle and the late rally was the start of wave e, wave e of the triangle ended at today’s high and the selloff and late rally were wave i and a deep wave ii of wave 5, or the whole wave count is wrong. Ain’t Elliott fun!