Stock Market Update for October 16, 2012

On the chart below I believe I can finalize the lower support line. The consequences of this should be that a clear violation of it should cause me to call the S&P 500 trend down. I have connected two tops (see green ovals) in the only way that it is possible to encapsulate the entire price action at the highs since the June low. Then I connected a parallel line to the June low. The lows of two and three days ago just happened to find support at the lower line. Also note how at the line the second hit was a little higher than the first. This type of action often occurs at swing lows and is caused by the market holding a trend line. A close below this support line should coincide with a close below the 50 day moving average at which the S&P 500 found support in the last few days.

The daily P&F chart for the S&P 500 went bearish during the correction and will not reverse this signal until the market hits 1480. I will go with the original targets on the P and F charts before this reversal occurred as I have no faith in the new bearish signal. Using the measurement of the blue one leading diagonal on the chart below added to the blue 4 low, yields a target range of 1485-1521 for the S&P 500. The original bullish P and F target range from the weekly and daily charts was 1500-1550. The market appears to be in wave three of three of one of five now if the count below is worth anything. If the cash index can break over the high of the 5th, there will be a double bottom target of 1516.
 

S&P 500 Index

There is also a smaller double bottom on the S&P 500 E-Minis that targets 1462. 

S&P 500 E-Minis (Dec)

"Could" Be Forming a Bottom

I can't be sure about a bottom here, but there are a few clues that may be pointing to one. First, on chart 1 below we can see that the VIX failed to make a new high creating a divergence while the S&P 500 made a new low. I would like to see some reasonable buying though before the close. Both the Minis and SPX cash are at their 50 day moving averages so they need to hold right around here, or the intermediate term trend down on these will be confirmed on any further decisive weakness. See chart 2. On chart 2 you will also find my line in the sand which I have not moved at 1417.50 E-Minis Dec. There are now certainly enough indicators showing a condition oversold enough to produce a rally or at least a bounce. However, this is tricky business because sometimes the worst of a sell off comes after the market is already in an oversold condition. On chart 1, I also have my current primary count for a flat fourth wave. It is still valid, but I would tend to scrap it on any further weakness of significance since C should be around the same length as A for this interpretation and a fourth wave should more or less hold the channel on chart 2. Besides this, the entire count seen as an impulse since the June low is supposed to be, in regular TA terms, an Intermediate Term affair which basically boils down to the 50 day moving average. This does allow for a little play around the moving average but does not allow for a decisive break below it.

Chart 1

Chart 2

Below on chart 3 is a close up of the current leg down with its channel. As we can see the market is attempting to find support around the 50% line (the center channel line). Sometimes this is how a bottom is formed. Still,, even though there is a bit of a battle going on today at these levels, there has not been any significant buying yet. From these particular levels, the Minis will need to get above both red lines, and above and out of the channel on the chart below before I would even consider the trend back up.

There are also some positive divergences on the intraday chart indicators at the second of the two lows on the chart below. I wish I could find more reasons for a bottom here, but it is a mixed bag at this time and some of the technical signs that are often seen that could be used as further support are not found. 

Chart 3

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