Market Overview

WAVE 3 OR CORRECTIVE WAVE C? Market turning Points


November 27, 2011 Market Turning Points By Andre Gratian


Precision timing for all time frames through a multi-dimensional approach to technical analysis: Cycles - Breadth - P&F and Fibonacci price projections and occasional Elliott Wave analysis

“By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law … The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." -- Mark Twain

Current position of the market

SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014.

SPX: Intermediate trend – An top was made at 1292. Future action will tell us if this is a resumption of the bear market, or another corrective wave.

Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends.

Daily market analysis of the short term trend is reserved for subscribers. If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at

Market Overview

The 1292 top may be turning out to be an intermediate top instead of a short-term top. After some distribution between 1260 and 1292, the SPX began a decline which has yet to reverse, even on a near-term basis. Each small down-wave concluded with a brief period of re-distribution followed by the next one down. This process has created a series of lower highs and lower lows which has yet to be reversed.

There were minor signs of deceleration in the trend, and even some positive divergence on Friday. As you will see, this is reflected in the hourly chart indicators, and this is always a precursor to some sort of reversal. In addition, there was an interim P&F projection to 1160 which was met and re-tested on Friday. It also looks as if a 5-wave interim pattern may have been completed at the close of the day, or could extend for another day or two to the next interim projection closer to 1150. This combination of factors suggests an imminent near-term reversal.

Assuming that we do get it, how close to a low are we for the entire decline? Perhaps fairly close, or perhaps very far. Let me explain! We know that a severe decline is due to occur into the low of the 120-wk cycle and its components -- most likely in October of 2014. Has it already started? Or do we need more preparation before it gets under way? This is what the market will tell us over the next few weeks. The structure suggests that we are either in a 3rd wave from 1370, or that we are making a corrective wave, followed by another rally before continuing lower.

The distribution pattern across 1257consists of three phases which are very distinct from one another. The SPX is in the process of completing the first phase of that pattern which has a projection of about 1137. If we stop there and start a good rebound, it is possible that we have only completed a “C” wave from 1192 (as well as a “B” wave from 1075), and that we can now mount a 5-wave rally to complete a bigger “C” wave which would also be wave 2. If we go beyond 1137, it will then be likely that we are indeed already in wave 3 from 1370, and then the SPX could continue to at least 834 before finding a good low.

There are some difficulties with that second interpretation, and one of them is the time factor. We are still three years away from the projected October 2014 major cycle low. Starting a wave 3 right now feels as if it would get to the bottom of the decline too soon, unless we have a wave 4 which is a couple of years long. It would be more logical to start a C wave from about 1137 and kill some more time making wave 2.

These are some of the possibilities for the long-term market structure. The next few weeks should clarify it. In the meantime, let's look at the charts to see when and where we might find our first decent rally.

Chart analysis

We'll start with the SPX Daily Chart. I have traced out the two possibilities. The recent top at 1192 is either Wave 2 from the 1370 top, or the “A” wave of a corrective pattern with the “B” nearly complete.

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