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Sunday, March 15, 2009 12:39:10 PM
Amateur Investors Weekend Stock Market Analysis (3/14/09)
http://www.amateur-investor.net/Weekend_Market_Analysis_Mar_14_09.htm
After seeing 4 straight weeks to the downside we finally got a decent oversold bounce this week. Overall we remain in the final 5th Wave of a longer term Elliott Wave pattern. Once again a classic looking 5 Wave pattern is shown below and notice once the final 5th Wave down ends this should be followed by a substantial ABC type corrective rally.
A longer term chart of the S&P 500 going back to the October 2007 peak is shown below with all of the Main Waves and Sub Waves as well. Notice we are in the final 5th Wave down with sub wave 4 (5) occurring with this latest oversold bounce. If this pattern follows the typical sub wave pattern we should see one more minor sub wave 5 (5) occur leading to a final bottom unless it truncates which I will comment on below.
A more detailed daily chart of the current 5th Wave is shown below with the sub waves. It's still possible the S&P 500 may rally up to the 772 level before the final sub wave 5 (5) develops.
As mentioned above there is one thing we have to be on the lookout for as it's always possible the final sub wave 5 (5) may end up truncating and never drop back below the low made on 3/6/09 of 667. The odds of this occurring would increase substantially if the S&P 500 were to rally back above the 50% Retracement Level of 772 (point B) and approach the bottom of sub wave 1 (5) which was at the 804 level.
Here is an example of what I'm talking about. If we look at a chart of the 1937-1938 time period you can see a nice longer term 5 wave pattern as I have labeled the sub waves within the final 5th Wave down. Notice how sub wave 4 (5) rose back above the 50% Retracement Level from the peak of sub wave 2 (5) to the bottom of sub wave 3 (5) which was around 115 and then pierced the bottom of Wave 1 (5). In this example Wave 5 (5) truncated as the Dow never dropped back below the low made with 3 (5) as a substantial ABC type rally developed. This something we will have to be on the lookout for in case the S&P 500 does rise back above its 50% Retracement Level next week.
Finally although the market bounced nicely from oversold conditions we need to be alert for a possible pullback early next week. The 5 Day Average of the Put to Call Ratio has now dropped to its lowest level (point B) since the market peaked in October of 2007. Over the past few years when the 5 Day Average of the Put to Call Ratio has dropped below 0.85 (points C) this has been followed either by a pullback or substantial sell off (points D to E) shortly thereafter. Considering how far along we are in the final 5th Wave down I don't expect a huge drop.
Keep in mind no matter what transpires over the next few weeks we are likely nearing a significant bottom in the market which will be followed by a substantial ABC type oversold rally that could last from 3 to 6 months.
http://www.amateur-investor.net/Weekend_Market_Analysis_Mar_14_09.htm
After seeing 4 straight weeks to the downside we finally got a decent oversold bounce this week. Overall we remain in the final 5th Wave of a longer term Elliott Wave pattern. Once again a classic looking 5 Wave pattern is shown below and notice once the final 5th Wave down ends this should be followed by a substantial ABC type corrective rally.
A longer term chart of the S&P 500 going back to the October 2007 peak is shown below with all of the Main Waves and Sub Waves as well. Notice we are in the final 5th Wave down with sub wave 4 (5) occurring with this latest oversold bounce. If this pattern follows the typical sub wave pattern we should see one more minor sub wave 5 (5) occur leading to a final bottom unless it truncates which I will comment on below.
A more detailed daily chart of the current 5th Wave is shown below with the sub waves. It's still possible the S&P 500 may rally up to the 772 level before the final sub wave 5 (5) develops.
As mentioned above there is one thing we have to be on the lookout for as it's always possible the final sub wave 5 (5) may end up truncating and never drop back below the low made on 3/6/09 of 667. The odds of this occurring would increase substantially if the S&P 500 were to rally back above the 50% Retracement Level of 772 (point B) and approach the bottom of sub wave 1 (5) which was at the 804 level.
Here is an example of what I'm talking about. If we look at a chart of the 1937-1938 time period you can see a nice longer term 5 wave pattern as I have labeled the sub waves within the final 5th Wave down. Notice how sub wave 4 (5) rose back above the 50% Retracement Level from the peak of sub wave 2 (5) to the bottom of sub wave 3 (5) which was around 115 and then pierced the bottom of Wave 1 (5). In this example Wave 5 (5) truncated as the Dow never dropped back below the low made with 3 (5) as a substantial ABC type rally developed. This something we will have to be on the lookout for in case the S&P 500 does rise back above its 50% Retracement Level next week.
Finally although the market bounced nicely from oversold conditions we need to be alert for a possible pullback early next week. The 5 Day Average of the Put to Call Ratio has now dropped to its lowest level (point B) since the market peaked in October of 2007. Over the past few years when the 5 Day Average of the Put to Call Ratio has dropped below 0.85 (points C) this has been followed either by a pullback or substantial sell off (points D to E) shortly thereafter. Considering how far along we are in the final 5th Wave down I don't expect a huge drop.
Keep in mind no matter what transpires over the next few weeks we are likely nearing a significant bottom in the market which will be followed by a substantial ABC type oversold rally that could last from 3 to 6 months.
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