Close – I’ll have Wave 3 please…

What a volatile ride today. Good thing we knew what was coming.

While today’s rally and subsequent decline fit our outline, we cannot be completely sure that wave III of 3 down has begun. There are quite a few indicators we look at when determining a trend change, in this case from rally phase to decline. One of the easiest to track is the breadth of the markets. In looking today, we started off ferociously with 4:1 negative breadth in $OEX, $NDX, and $INDU, as well as an index of 100 stocks I have hand-selected. However, closes hold conviction, and in this case we closed modestly negative today, with the $NDX being the weakest. The other indexes managed to end up close to 1:1.

That said, I must throw two options onto the chopping block. Scenario A is that wave III of 3 has indeed started, but that the markets must rally yet in wave II. Scenario A+ is that wave III of 3 is going to rapidly accelerate lower. While each of these has their facts, a few choice momentum indicators were not weak enough for me to confidently confirm that wave III of 3 is still in its infancy. What remains are wave II rally targets, and wave III break-out points.

For scenario A, prices will be pushing up in five waves into the area of 11390 or even up to the 11420 to 11450 range. Time relationships are pointing towards a top at 1:00pm (EDT), but I will give it to the end of the day. The previous second wave, of one degree larger pushed to the .236 fib retracement, which would be 11500 on this degree.

For scenario A+, price would need to push below the previous low of 11221. At that point, price will have left the upward channel, adding strength to a wave III break-down. The upward price channel is represented by the blue line.

As soon as we see sufficient price and momentum indications that wave III of 3 is indeed in force, we will be posting.

Skol.