Daily Stock Market Update – One – 09/02/11 © ™




  • There are 3 peaks to a completed wave count. A reversal of trend takes place after a completed wave count of 3 peaks.   Often times it’s as simple as counting 3 bumps on a chart . . . Other times, not so easy.
  • In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.
  • Each step must stay confined to a channel.  Laying a pen or pencil on the chart will help you visualize the channel.
  • As the trend progresses, all of the steps that make up the overall current trend will also be confined to a channel.
  • When the market breaks a channel (regardless of the perceived wave count), the current step has been terminated.
  • A single wave may sub-divide into another 3 waves.  I will also call this an extension.  When this happens (1) the trend is still intact, (2) the channel has widened and (3) instead of a total of 3 steps, there will have 5 steps.  (The charts will help you understand this concept.)
  • Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered to be larger than a step.
  • Wave Counts In Charts – Numbers of the same color represent steps within the same wave.  For instance, red 1, red 2 and red 3 are steps within the same wave.  Different colored numbers represent steps in totally separate waves.  For instance, a red 1 occurs in one wave while a blue 1 occurs in a totally separate wave (refer to charts for examples).
  • Reading the glossary helps a great deal in the understanding of this blog.
  • Glossary Link



  • Short Term
  • August 19, 2011 To Present
  • Correction After Step 2 Underway
  • Last Action Status – Buy Signal On 8/29/11
  • Renewed Buy Signal Possible

The first chart shows the presumed wave count on the downside beginning at a peak on Wednesday.  If this count is correct we should rally a little bit and then decline later today into a 5th wave bottom.  This could work exactly as I said yesterday:  “I might look for a bottom late in the day on Friday but it all depends on the count.”  So look for a bottom just before the close today.

Today is a 90% down day and that’s not good because it shows intense  selling.  The channel is at its most extreme width but it is still in effect.  It is not unusual for a last low to widen the channel a little bit so that would not overly concern me.  More free fall is something that would concern me and that could create a sell signal.  A probing of today’s lows in the 5th step could create a renewed buy signal.

In the second chart is a less than favorable wave count that could produce a lower low than August 9th.  This is a possibility that one must be aware of but at the moment I favor a rally back to the step 2 highs.  A free fall would mean this wave count is valid.  Free fall could also have severe implications for the longer term picture.  We will wait and see about that.

Worst case scenario is that we have begun another probe (or penetration) of the bottom area on August 9th.  Best case scenario is that the bottom of the correction following step 2 up is almost finished and we will begin step 3 up either very late today or Monday.

I may be a renewed buyer late in the day today.  May is the operative word here.

SP 500 Futures, 5 Minute Bars

09-02-11 SP500 FUTURES 5 MIN BARS

DJ Industrials, 5 Minute Bars – Also showing a less favorable wave count.

09-02-11 DJI 5 MIN BARS

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