The Chart du Jour

Ouch!

May 22, 2001

By, Barclay T. Leib

Certain of the financial stocks on which we have been negative shot higher yesterday. So too did the middle-market restaurant-chain Applebee's, electing our suggested stop. And just when we wrote that International Rectifier was unlikely to make new highs, it promptly did so, just avoiding our suggested stop for now.

It was not a good day at Sandspring.com, and it has sent us back to our charts of the major indices for more clues as to when this recent updraft of equity happiness will end.

What we find when we take a microscopic look at the 60-minute chart of the S&P 500 cash, is a 5-wave advance unfolding, with prices likely to have reached a minor v of iii of (5). Taking place within a corrective period, we know under the rules of Elliott that a 5-wave advance cannot unto itself represent a completed corrective action, but can only be part of one -- perhaps wave A up within a larger A-B-C pattern.

Per the chart below, with Fibonacci bands stretched up from the late March low to their optimum extrapolated level, we would see the S&P 500 ultimately failing near 1333 by early June to end a Wave A up. Then Wave B down will take over, scaring the hell out of people as it tries to make a run (likely failed) for new lows, before another Wave C rally that will be heralded as the true return of the bull market. It will of course be nothing of the sort. This final wave B will instead be the likely end of a corrective IV wave, with significant weakness still ahead.


Chart produced using Advanced GET End-of-Day

We have gotten it wrong here in the short term on selected stocks, but still look to the first week of June to bring a stop to recent equity strength. This time around it will be the financial stocks that stop dead in their tracks, and start to play catch up with last year's tech meltdown.


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