In-depth market, sector, and security analysis should be based on a comprehensive approach. In my work, I incorporate what I strongly believe are the best tools of multiple technical analysis disciplines. I employ Elliott Wave Theory in conjunction with western and eastern technical analysis techniques to produce a forward-looking, multi-dimensional assessment of:

• The future direction of the various financial markets.
• The factors that may affect the markets' directions.
• The approximate timing and duration of upcoming moves in the markets.
• How to determine when the markets will be accelerating or changing directions.

The analysis that follows is a good example of how this approach works to produce high-probability scenarios that are both timely and actionable.

Trend analysis: S&P ETF


The above daily chart of the S&P ETF (SPY) provides some very good clues as to where this market correction is likely headed.

First, the broken (long-term) downtrend going back to the October 2007 peak has provided support twice already (see green highlights along trend line) and may prove to be the stopping point for the current decline as well. That downtrend line presently comes in around 95 on SPY -- roughly translating to S&P 950.

Second, the Fibonacci retracement lines (of the March 2009-April 2010 rally) provide three potential support lines to consider.

• The 38.20% retracement line at 101.10 translates to S&P 1,010 and corresponds closely to the 400-day simple moving average (not shown).
  
  
• The 50% retracement line comes in at 94.61 for SPY, translating to roughly S&P 950 -- corresponding closely with the convergence of the broken downtrend line (mentioned above) and the newly formed price channel (thin blue lines), as well as the June 2009 peak (see green circle, left side of chart).
  
  
• The 61.80% retracement line at 88.12 roughly translates to S&P 880. This corresponds with lows from May and July 2009 (see green rectangle, left side of chart). Additionally, the aforementioned long-term downtrend line would come in around 880 later this fall. Given its slope -- falling approximately 20 points each month -- the downtrend line would reach 880 in October. That would come just before mid-term elections and the new fiscal year (US federal government).

Wave analysis: S&P ETF


In this daily chart of SPY I’ve employed Elliott Wave Theory to identify a possible “abc” pattern. The 100% Fibonacci price projection for this abc correction would be 95.46, which corresponds almost perfectly with the June 2009 peak (green highlight, left side of chart), the 50% Fibonacci retracement (of the March 2009-April 2010 bull market) and the convergence of the long-term downtrend line and downward price channel (shown in previous chart).

Pattern analysis: S&P ETF


In this final daily chart of the S&P ETF I’ve labeled the head-and-shoulders pattern that many have identified. A weekly close below the 104 area (1,040 on the S&P) will confirm a break of the neck line. Measuring techniques would then have the SPY likely trading down to the 86-88 area (translating to 860-880 on the index). If SPY closes below 94.50, then I'll be convinced that S&P 860-880 is the ultimate downside target.

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