Keene Little : 2/20/2007 12:31:55 AM
I was looking at the NYSE over the weekend since it's clearly in blue sky territory and you can't find "normal" levels of resistance to determine where it could be going. After studying various time frames and patterns I'd have to say it's quite possible we've seen the high. Or at least we'll know very quickly Tuesday morning if we've seen the high since it will need to start down immediately if last week's high was it.
I thought I'd share a little of what I found and we can watch to see what happens from here. Starting with the weekly chart I show price action since 2000: Link
I placed a Fib retracement on the 2000-2002 decline that shows the projections above that decline.
The first thing to notice is how price reacted around the various Fib levels (tells me whether or not these Fibs are showing influence over the market) and I see good correlation. Next thing I see is that the move up from 2002 is exactly twice the decline at 9455 (the 200% projection at the top).
This kind of "measured move" is very common (162% projection is also very common). Next thing I did is make a Fib projection for the leg up from July based on the first leg up off the October 2002 low and that shows a 162% projection at 9451. Nice Fib correlation there. And with last Thursday's high at 9442 one has to wonder if that was close enough.
Drilling down, the daily chart shows price action since July (that short leg down in July was actually a truncated finish to the pullback correction from May): Link
I again show a projection for the last leg up (wave-5) based on the first one (wave-1) and it shows they'll be equal at 9489. So if NYSE has not finished rallying then that's the next level I'd watch to see if it tops out there. It's only a stone's throw away at this point.
Drillng down a little further to look more closely at that 5th wave, which is the leg up from the January low, this 120-min chart shows how price is unfolding in that leg up: Link
Based on the 3-wave start I'm thinking another ascending wedge (ending diagonal 5th wave which allows for overlap between the 1st and 4th waves) and the 5th wave of this pattern is typically 62% of the 1st wave. I show that projection at 9434. This is still relatively close to those longer term Fib levels at 9455 and 9489. Price is also at the top of its ascending wedge.
As I point out on the chart this wave count would be violated (and probably mean something a lot more bullish was going on) if it rallies above 9499. That would cause the 3rd wave of wave-5 on the chart to be the shortest and that violates one of the more important EW rules. It would mean we might have a 1-2, 1-2 to the upside in which case we would blasting off to the upside. Based on several readings, including waning market breadth, I don't think the more bullish pattern is unfolding. But getting above those longer term Fib levels mentioned above would also be bullish.
So I show the possibility for price to pop a little higher but it should at least pullback if not drop below the ascending wedge. A break below 9243 would say we've seen the top. And finally, drilling down to the 15-min chart: Link
I show the steep drop off Thursday's high followed by what looks like a corrective (A-B-C) bounce. That should indicate that the decline will continue. Two equal legs up in the A-B-C bounce is at 9433 which is also at a 78.6% retracement of that sharp decline. I call this the "line in the sand" retracement level--any higher and you can bet it will head to a new high.
And this is why I'm saying the pattern is set up for a top and for an immediate decline out of the gates on Tuesday morning. If it doesn't then we march right back up the longer time frames and have to start thinking more bullishly about what could be happening. Whether the other markets follow the NYSE is tough to tell but keep your eye on this one in the morning. If it heads south right away it could mean something more significant to the downside is in the works. Now we'll watch and see.