1/5/12 - A Tale of Three Indices

Let's look at the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all together, shall we?

The primary count in the SPX is that we are currently in Micro [5] of v of (c) of [y] of 2.  If so, the SPX should not go much above 1288.50 and the DJIA should close no higher than 12,467.  Unless the DJIA and SPX are on separate counts, which is not out of the question, and assuming the primary is the correct count, Micro [5] on the DJIA should truncate, terminating below Micro [3] (Tuesday's high).

On the Nasdaq we do have a new high above Tuesday's high.  Micro [3] on the Nasdaq is longer than Micro [1] (88 vs. 86 points), so Micro [5] is not limited in how high it can go before invalidating the wave count (well, besides 2887.75, its May 2 top).

On the SPX and DJIA, we had negative RSI divergence with respect to the December 27 and January 3 highs.  The Nasdaq did not confirm this, as its January 3 high had higher RSI than Dec. 27, but we have lower RSI on a higher high for it here.  All three indices have lower MACD highs (though it's hard to see on the Nasdaq so I have helpfully included the values).

What does this mean?  It means the market's tired.  At the very least, it will likely undertake a significant correction soon (down to the lower 1200s at least).  More bearishly it means we may be only a matter of hours before Minor 3.

The above chart adds credence to this view by suggesting that the entire move from May 2 so far is fractaling the action from May 2 through the end of July.  In such a case, we are at the equivalent of Point 5.  In July, the market topped and then began to oscillate near its top making steadily lower highs and lower lows before finally collapsing to point 6.