AEX Weekend Update

The AEX is still holding above the lower trend line. With the options expiration out of the way, the AEX is clear to pick direction. The USA indices were up on Friday (SP500, Nasdaq) while the DOW was flat due to bad IBM Q1 results. The preferred scenario still favors a bounce up from here. I’ll explain why. Look at the chart below.

According the the Elliott wave principle, the direction of the trend moves in 5 waves (the impulse) while corrections on the main trend move in 3 wave (the corrective wave). It appears that the AEX moves up in 5 waves, followed by a choppy correctional wave. This suggests that more ‘up’ is coming. This likely won’t be easy as there is heavy resistance in the 345-352 area (red). Also, a break of the lower trend line will decrease the odds of an ‘up’ dramatically.

Below shows the preferred bullish count (and an alternate). Both suggest an immediate ‘up’ from here. Another option is that wave b hasn’t ended yet but will form a contracting triangle. In this case one more up-down is needed to complete wave b. Regardless, higher prices will come after.

This next chart shows the bearish count. This is not the preferred count because the decline starting at E does not look impulsive. Also wave E counts best as a 5, while A and C looks like 3′s. And ending diagonals should be a 3-3-3-3-3.