Wave [ii] Retracement - 11/06/2009

[Edit: Dan's blog regarding wave 2 retracement]
An updated wave 2 retrace theory
SPX wave 2 retracement

In EW Theory, wave 2 will retrace 61.8% of wave 1. Dan calculated this retracement percentage numbers for all the six minute [ii] waves starting from 2007 October.

Here are the numbers:
[ii] of 1 of (1) = .726

[ii] of 3 of (1) = .737

[ii] of 5 of (1) = .581

[ii] of 1 of (3) = .652

[ii] of 3 of (3) = .741

[ii] of 5 of (3) = .668

"All had very deep retraces past 61.8%. In fact, the numbers generated kind of proves that Fibonacci retrace 'targets' are much overrated. The average retrace was .654. If you discard the quirky 5 of (1) of P1, the average of the remaining 5 is actually .70."

"So what does this mean? It means that so far, the Wilshire 5000 has only retraced 56.4%, which is still way below average."

If S&P500 topped at 1101 on October 21 and we are in minute wave [ii] retracement to minute wave [i] decline from 1101 to 1029, the target for wave [ii] would be 1073 to 1080 level.

In above chart you can also see:
(1) Volume has been decreasing for past 5 trading sessions during minute wave [ii] retracement
Target for wave [iii] if minute wave [ii] ends at 1075:
wave [iii] target = 1075 - 1.618 * wave [1] decline
= 1075 - 1.618 * (1101 - 1029) = 959

(2) 8-day decline vs. 5-day retracement: another pair of Fibonacci ratio

(3) Head and Shoulder pattern if minute wave [ii] tops at 1073 to 1080 level.
Target for this HS pattern = 1025 - (1101-1025) = 949

So we will see the target zone at 950 to 960 if this wave structure and Head and Shoulder pattern unfold in next few weeks.