9/4/11 - Labor Day Selloff?

Well, obviously not, since U.S. markets are closed on Labor Day.  But the futures are open for trading, and they are down slightly at about the 1167-1170-ish cash equivalent - although they have come up a bit since their daily lows.

I see two viable wave counts, which I have labeled FIRST and SECOND.  The FIRST count is the more near-term bearish:  it has the 1170.56 low as only Micro [3] of Submin iii of (i) of [i] of 3:

The near-term bullish count, SECOND, has Submin v and thus Minuette (i) having already finished, in which case we would expect a move up in Minuette (ii).

Logically one would expect the gap to be filled in Minuette (ii).  This would occur at 1204.42.  If the current low is the low (i.e. count SECOND is the operative one), a 61.8% correction would take us to 1207.38 and a 50.0% correction would take us to 1200.26.

Given that my counts have us now in Minor 3, I find it hard-pressed that Minuette (ii) of [i] of 3 would retrace any further than 61.8%, though it could surprise me.  A 61.8% retrace, on a log scale, would fill the gap exactly with a low of 1163.07.  On the other hand, it need not make such a steep retracement right now; the market may seriously wait until Intermediate (2) - or even the next Cycle wave up! - to fill this gap.

It must be pointed out that we have a multiday island reversal, going into a long weekend, in a seasonally horrible time of year for stocks.  The only bullish "fundamentals" seem to be the religious belief that QE3 "must" be coming - "Bernanke will save us; Bernanke will not let the markets drop", the possibility of yet another European bailout that will work as effectively as the last billion (i.e. not at all), and news that certain data points weren't as bad as expected.  That's it.  And "fundamentals" don't affect the market all that much anyway.

There is the potential for the market to get as low as ~1135, a 61.8% retracement of which would bring us to the point of maximum acceleration at ~1193.  An 1135ish low, particularly one made Tuesday, plus the Minuette (ii) retracement would create a beautiful inverted cup-and-handle pattern that would foretell the deep Minuette (iii) impulse down to come.