Final Market Rally: Market Bounces Off Key Support Level

The market bounced off S&P 1292 on Friday’s “Faceplant Day”. This is a key level, since it marked the peak of the initial Wave 1 rally off the October 2011 bottom at SP1075. This mid-day alert chart from AllAboutTrends shows the bounce:

A lot of the doom-and-gloom Elliott Wave crowd were expecting it to break, confirming (in their counts) that the long-awaited and dreaded P3 wave down had begun. If we had broken it, the rally since last October would no longer be countable as an impulse wave since wave 4 (the current wave) would have breached into the range of Wave 2 (the wave after that 1292 peak). If we now hold above, the current wave since last October looks like a classic C wave, which breaks as an impulse in either a Flat or Zigzag correction.

If this holds, we should expect my predicted final leg 5 up to new highs (since 2009), and a Triple Top at SP 1550 +/- (going back to the peaks 2000 and 2007). If this leg 5 mimics leg 1, it should run for about six weeks and go around 220 points, putting it above 1500. Structure isn’t optimal, as we would have expected wave 3 to extend (ie go 1.6x wave 1 or 5). Also, historical patterns would point to a peak in August not July, to be followed by a September/October market drop, so this may run up more slowly than wave 1.

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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