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Vacation Time Is Over. What Now?

09/08/09 11:14:59 AM
by Koos van der Merwe

School holidays are over. September, traditionally the quietest month of the year, is upon us, with the notoriously volatile October ahead. What now?

Security:   SPX
Position:   Accumulate

Figure 1 is a weekly chart of the Standard & Poor's 500. In the chart I have shown my preferred Elliott wave count, which suggests that the index is presently tracing a wave I upward in a new bull market. In the chart, note the following:

Graphic provided by: AdvancedGET.
-The relative strength index (RSI) gave a divergence buy signal on February 27, 2009. This is a strong buy signal and the index moved up strongly.
-The chart shows that wave 2 of wave I is complete, and the index is currently in wave 3 of wave I.
-The move from a low of 666.80 to a high of 956.25 in wave 1 of wave I suggests that the top of wave 3 of wave I should be anywhere between 1158 and 1137. Wave 3s are usually 1.618 the length of wave 1. They can also be equal to wave 1, but should never be less. If, and this happens rarely, they are less than wave 1, then wave 5 will be shorter than wave 3.
-Wave 2 of wave I is a simple wave, which means that wave 4 of wave I will be a complicated wave.

The chart suggests that there will be no dramatic September down move and no October crash, unless of course September turns out to be a nonquiet month contrary to the norm, as traders and investors returning from vacation rush into the market and push the index to the suggested target far quicker than expected. Should this happen, then we could easily see a wave 4 in October with a wave 5 of wave I sometime in 2010. Vacation is over. The next few weeks should be interesting.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 09/08/09Rank: 3Comment: 

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