Another Test Of Support

When I say that I am uncertain of a micro structure, it is usually because the market had not made it clear where the first and second waves reside within a rally structure (or because we are dealing with a diagonal).  

Remember, once the first and second waves of a 5-wave structure are in place, then we can use our Fibonacci Pinball structure to track waves 3, 4 and 5 quite accurately.  And, when I was outlining in the weekend report that wave i-ii within wave [iii] are not clearly evident, it caused me to be unprepared for the test of support we experienced today.

So, I have taken a step back to the prior wave degree, which is represented by waves [i][ii] within wave V of 3 of [3].  You can more clearly see this structure on the 60-minute SPX chart.  On the 5-minute SPX chart, you can only see the wave [ii] within that time frame.  

But, in focusing on that wave degree, we can now re-build the structure, without the need to identify waves i-ii within wave [iii].  As I have outlined many times, waves iii of [iii] often targets the 1.00-1.236 extension of waves [i][ii].  That is at the highs we struck this week.  And, when wave iii strikes the 1.00 extension, wave iv often pulls back to the .618 extension.  That happens to be where we bottomed today. 

So, what does this mean going forward this week and into next week?

Well, if the primary green count is still applicable, the market will continue to move higher impulsively to complete waves 1-2 within wave v of [iii], as shown on the 5-minute SPX chart. We would then break out to new all time highs, which would have us targeting at least the 4440SPX region which is the 1.382 extension of waves [i][ii].  

However, if we now break down below today’s low, it would strongly suggest that wave 3 in yellow has topped.  Personally, I have a very hard time adopting that potential since the market has not yet struck its larger degree minimum target in wave 3, which is the 1.00 extension of waves [1] and [2], which is the 4440SPX region.   Yet, a break of this Fibonacci Pinball structure would force me to view that yellow count as much more likely.  But, I will be entertaining a bigger diagonal for wave v of 3 as well.  

So, for now, the market is holding support, and as long as we continue to move higher impulsively, I am looking for the 4440SPX region as our next target.  At that time, we will move our support up to the 3460SPX region. 

However, should we break support, then I have to view the probabilities as significantly increased that we are going to target the 4165SPX region.   That is the .618 extension of waves [1] and [2] of the larger degree structure, as well as the .382 retracement of yellow wave 3.   

Keep in mind, one way or another, I am still expecting a 200-300 point pullback over the coming months before we are ready to climb through the 4600SPX region and head towards the 4900/5000SPX region to complete wave [3] of 3. I would still much prefer us to begin that pullback from 4440+.

5minSPX
5minSPX
60minSPX
60minSPX
Avi Gilburt is founder of ElliottWaveTrader.net.