UPDATE:  3:00 AM

THE PATH TO 350:  Day 7
 

The strong counter-trend rally is developing a rising wedge with an apex of around 1180.   This coincides well with the Bat pattern .886 (mentioned below) of 1182.

SPX has held pretty religiously to the B-6/B-7 channel thus far, the only excursions being intra-day shadows.  So, it’s likely we’ll tag the 1182 level and retreat to the .786 at 1170, back within the channel line.

If we push decisively through 1195, I’m prepared to reevaluate. 

Employment numbers are due out at 8:30.  It’ll be interesting to see if September’s numbers are revised to below the 0% increase that was reported.  Moody’s just downgraded a boatload of British and Portuguese banks.  So far, the futures haven’t noticed. 

ORIGINAL POST:  1:50 AM

I mentioned yesterday that I wasn’t thrilled with the presumed Bat pattern because the entry point looked wonky.  Ideally, Point X should be at a clear and distinctive reversal.

I was operating on what I thought was a pretty good EW count.  It has since been proven at least suspect, and probably wrong by today’s rise above 1140.  So, I’m going to keep my nose out of the EW tent and refocus instead on the harmonic picture.

Given where we closed today, I’d say there’s a great chance we’re working on completing a Bat pattern with the Sep 27 1195.86 as an entry, or Point X.  The Point B retrace was .236, a perfect fibonacci retrace for Bats.  The target is the .886 at 1182.06.

Another possibility arises, though, based on the fact that we came very close to the .618 at 1149.60 today.  1149 could be a Point B, with a reversal to Point C before climbing again.

If we get any kind of reversal tomorrow, look for a rebound to the .786 at 1170 instead of the .886.  This would be a Gartley instead of a Bat, and it would fit just fine with the channel line (B-7 in red) that’s bounded the decline since July.

In any case, we should top out Thursday or Friday and begin a sharp 130+ point decline that wraps up in a week or so.

Keep an eye on the channel line.  While we could easily exceed it intraday, we shouldn’t close above it (about 1173 Thursday, 1169 Friday.) Any such close would be a sign that a lower low is probably not in the cards.

Also keep an eye on the SMA 50.  Currently at 1183, it should help keep a lid on any upside.

Back in July, I blogged about the 2011 v 2007 pattern being off by a few days.  It struck me then that as the 2011 market approached the edge of the cliff, it slowed relative to 2008.

Perhaps some of the forces propping up the market were aware of the analog and threw more ammunition into preventing a repeat [see: Happy New Year and All Aboard.]  They only delayed the inevitable, as the market fell 57 days after the top versus 2007’s 52 days.

Interestingly, the market caught up to where it “should have been.”  The 2007/8 market bottomed 70 trading days after its 10/11/07 top.  After its plunge, this market found a new bottom at 69 trading days after its May 2 top.

The chart below details day-by-day comparisons between the two markets.

updated to EOD

Yesterday’s low of 1074 could be interpreted as the equivalent of 3/17/08.  It is the 108th day since the top and 23rd since the 8/31/1 midpoint; that would correlate nicely with the counts of 107/22 for 3/17/08.

But, I think it’s more likely that we’re simply seeing the same pre-plunge analog fart that we saw back in July, and before that in June.  If so, we’re at the equivalent of 3/12/08 and Minor 1 isn’t quite over.

I’m looking for a decline to 1040 sometime around next Friday, which is at the confluence of a number of harmonic patterns, head & shoulder patterns, trend lines and fan lines [see: The Path to 350.]

Also, a word to the wise: I’m usually early, and I often underestimate the degree of the declines I forecast.

I had a wonderful lunch with some very close friends the other day.  They’re both off-the-charts smart.  He’s a CFA, former actuary, institutional asset management whiz.  She’s an artist turned entrepreneur turned asset management whiz.

Yet, their jaws dropped when I ran my forecast of the S&P; 500 dropping to 350 past them.  When I mentioned that 350 would be the first wave down of five in P[3], I caught them checking their watches, LOL.  I know it sounds preposterous.  Such a decline no doubt means a Depression.

When I first started talking about another Depression many months ago, most people thought I was ready for an I-love-myself jacket.  Now, I’m hearing it talked about daily in the mainstream press (another reason we’re going to bounce up very soon.)

As my friend reminded me, many US stocks derive plenty of earnings from overseas, and are well-positioned to take advantage of still-strong BRIC economies.  That’s the key question, isn’t it?  It’s pretty clear the US consumer isn’t going to buy as many Cokes and iPhones as in the past.  But, maybe the Chinese and Brazilians will.

Will that be enough to prop up multinational earnings?  And, what about interest rates?   Can we count on 0% bills and 2% notes, or will we see higher interest rates competing for equity investment dollars?  What would that do for PE ratios?  And, what would it do for global liquidity and wealth?

Lots to think about.

More later.

THE PATH TO 350:  Day 6

Charts updated for end of day prices.  So far, so good.

Going to have to think about the EW count a little more, but I take great comfort in the fact that the midline of the channel effectively capped today’s rally.

And, an updated chart on the 2011 v 2008 analog…

For an important discussion about the comparison, see Tell Tale Fart. 

EUR/USD should get one more push down to 1.31 if only the Bat plays out — 1.16 if it’s the crab instead.

Take a look at Apple, which just broke through a rising wedge 5 years in the making.  It could and probably will backtest for a while.  But, this is market leadership showing its hand in a very negative fashion.

It’s developing a bullish Crab pattern that indicates a potential reversal, but not until we get to 340.

That’s a big drop from 422 on Sep 20, when we noted the very bearish, completed Crab and Butterfly patterns.

More later.

THE PATH TO 350:  Day 5

Again… so far so good.

And, a crack at the Minor 1 Elliott Wave count.  Note that (iii) amounts to a 1.618 multiple of both (i) and (v) — assuming we make it down to 1040.

ORIGINAL POST: 11:00 AM

I’m expecting internal trend lines to shape today’s price action.

More later.

THE PATH TO 350: Day 4.  So far, so good.

Still looking for a descent to 1040 by next Friday the 14th.  Although, at this rate, we might well arrive before schedule.

More later.