No Comments Written by Anthony Truong on August 18, 2008 – 5:59 pm

Apologies for the gap in updates – due to a change in premises, I have been unable to access a regular internet connection for a few weeks.

“Choppy” is the perfect word to describe what has been happening in the markets over the past few weeks.

The hourly charts (below) of the SPX and Wall Street show an alternate count that I did not include in the last Market Update – what’s termed a “double zigzag”, as opposed to a simple “single zigzag” corrective pattern. It has taken precedence over the other alternates as a triangle in the “B wave” is now impossible, and a diagonal “C wave” is very unlikely.

What’s interesting is that the double zigzag implies this intermediate wave 2 (Wall Street chart)/wave 2 (SPX500 chart) has topped, and the slight drop since 11 August 2008 is actually the beginning of wave 3 down, which should be brutal and relentless. Hmmm…I’m uncertain at the moment – ideally I’d like to see the US indices travel up just a bit more into the 50% retracement level, somewhere near 12,000 in the Dow and 1,320 – 1,326 in the S&P500, but we are in a bear market, and things could surprise us to the downside.

Further evidence of a potential significant top is the fact that there is a slight bearish divergence in the stochastics between the wave “A” high and tentative wave “C” high on the daily chart below (see red line on the stochastics indicator).

If the Dow and S&P make it up to the cited levels I mentioned above, I would then definitively be aggressively bearish, expecting a crash in prices of sorts. However, now is not the time to be adding long positions to see if markets do make it to those levels; I’d be looking to add to short positions as markets move up, or if they confirm that wave 3 down has started (by breaking 11,300 in the Dow and 1,250 in the S&P500), then by all means try to catch the ride on the way down.