Blue Has One More Test
By
Avi Gilburt
Being true to my word and my analysis, once we took out the noted resistance, the market opened the door in a big way to the blue path to at least 5840SPX. But, there is going to be one more test before we can assume it is a high probability path.
As we can see, the market has rallied quite strongly off the lows identified intra-day yesterday, and we now seem to be completing wave [3] in the blue count. That means that I would still like to see waves [4] and [5] take shape over the coming days. Should that occur, then we have a high probability 5-wave rally off the recent lows, which argues strongly that it was wave 1 of the blue c-wave higher.
Should this play out, then we will be looking for a corrective pullback in wave 2. And, as long as it is clearly corrective, then it would be a buying opportunity for those that want to play the rally to 5840+. But, in truth, depending on where wave 1 tops and how deep wave 2 takes us, it could open the door to the 6000SPX region for this 5-wave structure.
The alternative is now the green count. Whereas the initial move down in the SPX really did count better as a 3-wave structure, I am now viewing the alternative count as being a leading diagonal for wave 1 down, which means this is a wave iv rally. Therefore, should we break down below support in the coming days, and fail to complete a solid 5-wave structure, then it opens the door to a 5th wave lower low for wave v of 1.
Take note that IWM also suggests that it should see a 5th wave lower low to complete its wave [i]. However, in the IWM, it can easily provide us with that lower low while the SPX provides us with a wave 2 pullback. Thereafter, the IWM would complete a 3-wave rally for its wave [ii], whereas the SPX would be completing its own 3-wave rally in waves 3, 4 and 5. So, there are two potential ways that the IWM and SPX can align over the coming weeks.
I think the market has provided us with solid parameters going forward, and I think we will likely have an opportunity to put money to work as we look towards next week.
There is only one small wrinkle I would like to add to the analysis. If the market should extend directly to the 1.764+ extension – the target box on the 5-minute chart, then there is potential that today’s consolidation is all we will see for wave [4] and we may already be in wave [5]. Therefore, should that occur, then you may want to begin building a long position on the next corrective pullback. If it only turns out the next corrective pullback is wave [4], you will have another pullback to buy in wave 2.
