No Comments Written by Anthony Truong on July 20, 2008 – 5:20 pm

Summary: The primary count is that the US markets are about to complete a smaller degree wave 4 corrective rally, before a final 5th wave down to new lows is seen. Once the 5th wave is complete, wave 1 of a larger 3rd (that started on 19 May 2008) of an even larger 3rd wave (that started in December 2007) will have bottomed. A large corrective rally, wave 2 (of wave 3 of a larger wave 3) will then follow, which should last several weeks.

Last week, we presented the following two charts as our forecast for the next few weeks.

The commentary that accompanied these charts was:

“We are looking for the ‘4th wave’ to top in the region of 11,550 to 11,650 in the Dow and 1,280 to 1,290 in the S&P500 in the next week, before the falls continue to around 10,700 to 10,800 in the Dow and the region of 1,200 in the S&P500.”

The next two charts display what occurred this past week.

As expected, the markets traced out a 4th wave (in the SPX500 chart)/4th wave (in the Wall Street chart), which appears to be forming an irregular (expanded) flat correction. The S&P500 topped just above 1,262 and the Dow made an intraday high at 11,511 on Friday 18 July 2008; both of these respective highs are shy of the targets quoted from last week. The structure of the wave c portion of this 4th wave corrective rally is clearly impulsive, but the last few substructures are not absolutely clear, leaving a few interpretations on the table.

In either case, we expect a modest new high for this rally (11,550 – 11,650 in the Dow; 1,270 – 1,280 in the S&P500, which is a downward revision from last week’s prediction) before one more impulsive leg down (wave ‘5’ in the SPX500 chart; wave ‘5’ in the Wall Street chart) to new lows. We are now expecting the 5th waves to bottom in the region of 10,660 – 10,740 in the Dow, and 1,185 – 1,195 in the S&P500, which are revised down from last week’s forecast.

Once wave 1 (of wave 3 [which started 19 May 2008] of wave 3 [which started in December 2007]) has bottomed, expect a large corrective rally that should last at least a few weeks. Next week we will offer targets for a top in this wave 2 rally.