Breakout Or Fakout?

After moving lower yesterday and finding support the market has moved up sharply today and is now testing a key resistance level that if broken will give us initial confirmation that we have indeed bottomed in the blue wave (ii) and are indeed heading higher per the blue count. 

With all of that said we are still not quite out of the woods in regards to the yellow count and If we can manage to hold at current levels and turn down on five waves then the yellow count would very much come back into play. 

For now however and as long as the pullbacks to the downside remain corrective in nature I will continue to look higher toward the blue count and this will remain my base case. 

As shown on the 5-minute chart we are sitting just under the upper end of the lower micro pivot at the 4774-4782 zone. The 4782 level represents the 76.4 ext of the initial move up off of the lows as well as the 76.4 retrace of the entire move down off of the highs. If we break over this level then it would make the yellow count less likely (as second waves rarely retrace beyond the 76.4 retrace). It would also give us further confirmation that we are following the blue count as the 76.4 ext of the wave i is the first level to break to confirm that we are following a wave iii up. 

Further confirmation of the blue count would then come with a break over the upper micro pivot at the 4788- 4808 zone. This level is the 61.8-76.4 ext of the wave (i) of one larger degree. It is also over the 100ext of the wave i of one smaller degree and it is over the previous wave (i) high. So moving through this zone would then tell us we are indeed going to attempt a push to higher levels per that blue count. 

Should we see a break of those levels I have targets for the the wave (ii) in the 4850-4906 zone after which I would be looking for a retrace for a wave (iv) before pushing higher again.

If we manage to hold under the 4788 level and turn lower on five waves followed by a break under the 4740 level then it would open the door for this to have topped in the yellow wave ii of (c). There are several issues with this path however and unless we see a clear five down and break of that level I am still leaning towards the blue count at this time.

So the bottom line for now remains that I am learning towards this being a breakout. We do however need to keep the pressure up and not see any impulsive downside moves. As long as that is the case I will continue to look up in the near term.

SPX  60min
SPX 60min
SPX 5min
SPX 5min
Michael Golembesky is a senior analyst at ElliottWaveTrader covering US Indices, the US Dollar, and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trading service.