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Amateur Investors Weekend Market Analysis (11/13/10)

http://www.amateur-investor.net/Weekend_Market_Analysis_Nov_13_10.htm

For those that follow Wave Analysis the S&P 500 appears to be exhibiting a large ABC type rally from the March 2009 low. Wave A went from 667 to 1220 while Wave B dropped back to 1011. Meanwhile the recent rally from the early July low of 1011 appears to be Wave C. Keep in mind C Waves are supposed to be composed of 5 separate Waves so it appears Wave 3 of 5 of C peaked at 1227. Also notice 1227 is only 2 points away from the 61.8% Retrace calculated from the October 2007 high of 1576 to the March 2009 low of 667.



Meanwhile the current pullback from the 1227 high would be Wave 4 of 5 of C. The first area of support would be at 1183 which is the 23.6% Retrace calculated from the bottom of Wave 2 (1040) to the peak of Wave 3 (1227) while the second level of support would be around 1170 which is along the 10 Week EMA (blue line). So I would expect Wave 4 of 5 of C would hold support somewhere in the 1183 to 1170 range. Meanwhile once Wave 4 of 5 of C finishes then Wave 5 of 5 of C would occur. Typically the length of Wave 5 will be similar to the length of Wave 1. Since Wave 1 of 5 had a length of 118 points then adding that number to the bottom of Wave 4 of 5 would lead to an initial target near 1300.



Finally as I mentioned a few weeks ago the overall pattern looks very similar to that of the mid 1970's in which a sharp 5 Wave sell off was immediately followed by a sharp "ABC" type oversold rally. However after the "ABC" pattern completed the Dow then traded in a choppy sideways pattern for the next 7 years before finally breaking out in 1983. Furthermore also notice there were two other "ABC" type moves preceding the mid 1970's one in the early 1970's and further back in the mid to late 1960's. Both of those patterns were followed by substantial sell offs (points C to D).