As shown on the image above, the index completed three waves within the period from March 1st 2009 and April 24th 2011. Those waves can be considered as an A-B-C zigzag correction, and the numbering shown on image above explains why we count on this scenario although different scenarios describe the movement. But we have chosen this scenario for its simplicity.
The index started the first impulsive wave after printing the latest top in 2011 which is the 76.4% Fibonacci correction for the major downside move that started from 1586.00 to 665.00.
The bullish trend that started from 1068.00 is a corrective wave, and according to our scenario it’s the second wave for the impulsive wave that started after completing C wave as shown on the image. The problem over the intraday time frames is that we are still not sure if the second wave was completed and we are currently within the base wave from the 3rd wave. Due to the different possible scenarios for the second wave that started from 1068.00, we will use a classic approach to define the invalidation points of the suggested Elliott count shown on the image above. The best is 1375.00 which is point C and the 76.4% Correction.
Any trading below 1375.00 keeps the suggested count valid, and trading below 1335.00 will increase the possibilities of this count. Regarding the second wave, stability below 1280.00 suggests that the wave has ended or at least almost. Accordingly, we anticipate a third bearish wave.
If the count succeeds, that means we might be ahead of strong selloff in 2012, as the third wave usually is very sharp compared to the 1st and 5th, and the least target resides at 878.00. If 878.00 areas were taken, the index might reach 760.00. Accordingly, if the count turns to be the right one, it will be a bloody year for the index.
Now, if the index manages to trade back above 1375.00 in 2012, we should reconsider the suggested count, where we might face a bullish move that carries the index towards 1586.00, which will be a result of a different Elliott count illustrated on the image below.
Finally, the Relative strength index failed to settle above 50 over weekly basis, suggesting that downside pressure may continue, the MACD is pointing to the downside as well failing to settle above the zero threshold.