12/23/200810:14 PM Pacific

This chart shows an alternate count of the zigzag coming down from A that undercuts yesterday’s low by 4 points on the e-minis to 848(verses the zigzag ended yesterday).The confluences are .810 retracement of X-A; 1.618 extension of b-1; intersection of descending trend line, and 850 is a round number with a lot of natural support that extends back to October. My preference is that yesterday’s low holds (especially in cash) but I offer this level in the e-minis as the alternate level that needs to be broken in order for a real breakdown to occur. The next level of support on a breakdown is still 830.

I have offered several times that part of the reason for my upward bias is that I could not interpret any reasonable pattern that projected more downside without going higher first. I now have one. The pattern below on the S&P daily chart provides a working thesis if price turns down now, and it will work even better if price gets back to 920 then turns down hard. I am not adopting this thesis yet, but I am placing it on the backburner in the event price turns south between here and 920.

12/23/200810:14 PM Pacific

This is an uncommon pattern, yet I have seen it several times on intra-day charts. It is an expanding diagonal; an expanding variation of the ending diagonal. The implications of completing this pattern are mind numbing. Even if price takes the most direct route it will get to 600 before it touches the bottom channel. I hope this pattern stays on the back burner. The Fibonacci levels shown on this daily chart are retracement levels of the entire move down from October 2007 to the low in November. If we are in a fourth wave double zigzag or some other zigzag combination pattern as I have suggested recently, then price should get to the .250 retracement level at a minimum, and it is far more common for price to retrace to .382 in a 4th wave.

The other thing you can see clearly from this chart is the natural support and importance of the 850 level. I would go so far as to say this that this is the most important level for the market on a closing basis in order to maintain an upward bias. Breaking this level would also mean that price would fall back into the down sloping regression trend channel that I wrote about last night. TMD/DW The market detective provides personal market opinion based on sound technical analysis and research. However, no warranty is given or implied as to its true reliability. The market detective will make errors and mistakes. The market detective is not

12/23/200810:14 PM Pacific

an investment adviser and is not making recommendations to buy, sell, or place orders relating to the futures contracts, ETFs, or stocks that he writes about. The responsibility for decisions made from information contained in this service are solely that of the individual subscriber. The individual must fully research and make his/her own decisions before acting on any information provided by the market detective. The market detective assumes no responsibility for subscriber investment or trading results.