Sunday, July 24, 2011

June Low Must Hold For SP500

The drama of the debt negotiations continue, but the pattern in the SP500 seems clearer than ever.  The only requirement for a positive resolution is that the June low not be violated.  I think we will see a positive resolution to the triangle once the debt deal is resolved, however it is resolved, and we will finally be off on the final major leg of the cyclical bull market that began in March 2009.

March 6, 2009 to February 18, 2011 was 23 months and 12 days.  If the numbskulls in Washington take it down to the wire, then wave (E) will end on Monday August 1, 2011.  If the duration of wave [Y] equals wave [W], then the final top will be on or around July 13, 2013, probably +/- 2 months.  If the length of [Y] equals the length of [W], then the final high will be on or around, unbelievably, 1963.72.  At 0.618*[W], the final high will be on or around 1705.00.  This is about 27% to 46% above current levels.

I know this is not the consensus view, and perhaps a retest of the 1500 level is the best that can be expected, but barring a breakdown of the June low I think wave [Y] up to new stock market highs is the most likely outcome.  We will know within 2 to 4 weeks if so.

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