The VIX has given its buy signal at the 50-day Moving Average and appears capable of rising above its compressed Cycle Top, as well. Note the redrawn Elliott Wave structure which finally became clear at Friday’s Wave (2) low. No rules were violated in this pattern, just stretched to the limit. The EW structure now says we are in Wave 1 of (3), which should be a magnitude larger than Wave (1). Wave 1 should rise to the trendline at 16.66 or possibly to 17.28, which is the high in the Daily chart. The Head & Shoulders pattern which gives the Wave 3 target is still valid. It is possible that Wave 5 of (3) may rise to the mid-30’s.

The NYSE Hi-Lo Index fell to -4.00, giving a clear sell signal after closing beneath mid-Cycle resistance yesterday. It is in a bounce at this time, but the decline may resume at any time.

SPX tested the Short-term support at 2577.70 before the bounce. The trendline at 2588.00 may be the stopper, but there are a lot of algo programs with hair triggers. This appears to be a good short entry for all stock indexes.

While this decline was 18 points in length and larger than the first decline, it is not long enough in my opinion to be a Wave three of any degree. In addition, there is overlap, suggesting a Wave [i]-[ii], (i)-(ii) pattern. In other words, Wave (iii) may be just starting. A decline beneath the Diagonal trendline assumes the decline may continue to 2400.00.

Regards,

Tony

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As a State Registered Investment Advisor, The Practical Investor (TPI) manages private client investment portfolios using a proprietary investment strategy created by Chief Investment Officer Tony Cherniawski. Throughout 2000-01, when many investors felt the pain of double digit market losses, TPI successfully navigated the choppy investment waters, creating a profit for our private investment clients. With a focus on preserving assets and capitalizing on opportunities, TPI clients benefited greatly from the TPI strategies, allowing them to stay on track with their life goals.

Disclaimer: The content in this article is written for educational and informational purposes only. There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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