Stocks Bear Market Preparing for Upside Breakout

By: David_Petch

On Tuesday, the S&P 500 Index swooped below 805 like a hot knife through butter, but a lack of follow through yesterday suggests the alternate count for the S&P 500 Index is now the preferred count. Also in today's article is an update of the US Dollar Index, along with various currencies.

S&P 500 Index

The CBOE Options Equity Put/Call Ratio Index is shown below, with the S&P 500 Index in the background and accompanying stochastics shown below. For this chart, the %K above the %D is an indication of general market weakness, while beneath the %D is an indication of general market strength. The %K appears to have hooked up after Tuesday's sharp decline, suggestive that a crossover for more than 3 days could lead to a change in sentiment.

Figure 1

The short-term Elliott Wave count of the S&P 500 Index is shown below, suggestive that wave (c).[b] of a flat pattern is completing, with wave [c] to follow. Based upon time relationships, wave (c).[b] should not complete until February 23 rd -24 th . Wave [c] should last 3-4 weeks at a minimum before heading higher. There is a way to count the pattern after wave [x].XX as a contracting triangle with reverse alternation, but I will stick with the labeling scheme I have been using. If the scenario I have labeled is correct, then expect a narrow trading range over the course of the next 3-5 trading days before breaking out to the upside.

Figure 2

By David Petch

http://www.treasurechests.info

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