S&P Futures: Market Wrap for September 20, 2010

So much for a quiet day before the FOMC announcement. Let's get right into it. The following chart shows where we are in terms of the current wave count. If you have been following along you know that I was calling for a breakout and a price target of 1134 +/- 1%. We have also reached the point where wave (v) = .618 wave (i) - (iii) at 1135.75. The high of the day was 1140.25 so there is certainly more room to the upside should the internal structure of wave (v) subdivide. 

You will also note that the previous high on June 21 labeled wave 2 (blue) , (1126.75), has given way to an alternative wave count whereas we never began wave 3. Often countertrend moves are difficult to nail down  until such a point where both technicals and wave structure finally come together. To be frank, I certainly had difficulty with the labeling but I alluded of this potential outcome as early as August 31 and then again on the following day. To quote. "Food for thought - Turning to the larger picture, the elusive, wave iii of 3 down, has not materialized leaving me cautious as if I smell a fox in the chicken coop! At the daily chart level, the market has meandered sideways for 3 + months. This is not the kind of price action one expects if we are truly in a third of a third. However, the larger count ( not shown) is still the highest in probability and should be maintained until such time as price renders us wrong. In the meantime, there is nothing wrong with looking ahead and playing "what if". Several possible explanations are available, although premature. Could we be building a triangle B wave that counts the decline from 4/26/2010 as an A-B-C structure or are we building a combination wave 2 pattern? " Well today we have our answer. It's a combination!  W-X-Y.

A few other key notes. Earlier in the commentary I mentioned that wave (v) could subdivide further. If so, the wave (c) = wave (a) at 1158. It's a possibility. What is of interest here is that an unclosed gap is at 1157 which by coincidence is in the vicinity of the previous 4th wave. This should make you pay attention to the message of the market because countertrend moves can end at or near the previous 4th wave. I'm not stating that the market can get there, I'm only drawing your attention to the fact and the principles of EW.

Looking forward, I am still be looking for a top as this rally is extremely long in the tooth. Until next time...

Best of Trading.


P.S. Don't forget you can follow me on Twitter for intrady updates at www.twitter.com/elliottwavelive