Elliott Wave Update ~ 22 May 2012

The virgin space identified yesterday was violated on both the SPX and Wilshire5000.   The down acceleration channel was broken out of this morning but by late afternoon prices had fallen well back within. It was only a scrambling "stick save" by prices at the end which resulted in a neutral close at the upper downtrend channel line.  It was obviously important for the market to show it trying to break this downtrend and for prices to at least end flat on the day.

The primary count may be the one below.  Granted, its not ideal but the rebound from the recent low appears to be only three waves.

If this count is correct, since wave (i) and (iii) of [iii] are about equal, we may see an extended wave (v) of [iii] taking prices well beneath 1292 support.

Three wave move from the recent lows is a reason to expect that this 2 day rally is a counter-trend rally:

The bounce from 1292 support was certainly not unexpected. Its obvious support.  But the daily candle produced today is not inspiring at all for bulls. A long-legged doji is indecisive at a time when bulls need to be the opposite.

CONCLUSION:
1. Although prices poked into the virgin wave space today (approx 1324-1326), prices failed to close above it.

2. The down acceleration channel was broken for some of today but prices fell back within by end of day and did not close outside of it.

3. Daily price action candle was an indecisive long legged doji. This was a failure to decisively follow through on yesterday's rally.

4. If the market is working on wave (v) of [iii] down, the final wave (v) of [iii] segment may well be extended since wave (i) and (iii) of [iii] were about equal.  This would take prices well below 1292 support.

5. Should the market rally tomorrow above today's price high, then the alternate count would move front and center most likely.