10/27/2008 8:06 PM pacific

The rally followed by the sell off into the close was an intense reversal but it does not alter my preferred pattern thesis from yesterday. The first 120 minute S&P e-mini chart below shows a 5 wave rally count today. In order for this to be correct, we cannot take out the low of 82500 at y. There are problems with this 5 wave count. The retracement is already more than 90% so the bias does not favor this option and instead favors at least a poke lower. And, if it does overcome the odds, it would require at least a 2.618 wave 3 with no more than a .250 retracement for wave 4 to get to the 1067 Flat target in 5 waves.

Note the 120 minute ADX (Directional Movement) below the chart. The tight crisscross pattern is indicative of a near term breakout in one direction or another. The technical bias without counting waves would lean toward the breakout occurring in the direction of the trend.

10/27/2008 8:06 PM pacific

However, my preferred wave count bias is that a move lower will not be more than a short trip to 81800 or 8000, which will then trigger wave C of an Expanded Flat extension of wave 4. Below is the modified count to support this thesis. The futures look to choppy here to me to be an impulse wave 3, and the Bollinger bands seem to be flattening with price drifting away from the lower band, a pattern that often precedes a reversal.

However, just in case hope, optimism, or something else is clouding my thinking, here is the alternate thesis on a 233 minute S&P cash chart. A move down in the cash looks possible. If we turn down hard, I believe that once through 800, we will hit 700 in short order. All 3 counts are technically accurate and do not violate any Elliott rules.

10/27/2008 8:06 PM pacific

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