The action over the last several days has been quite corrective looking. And, the size of this pullback is starting to become a bit large for a potential wave ii, especially when I look at in in the ES.
However, I think it is time to go back to focusing on the 5-minute SPX chart, as it really shows where we stand quite well.
As you can see, I am outlining two different potentials on the 5-minute SPX chart. The bullish one is still in green. And, what that suggests is that as long as we hold over 3650SPX region (.618 retracement green wave i, then we have a valid [i][ii]i-ii upside set up. But, there are clearly issues with it, as I outlined yesterday. Moreover, this wave ii is getting a bit large for my taste relative to wave i. But, for now, it remains valid.
Yet, there is an equally compelling red count at this time. And, the red count would suggest that today’s high was a [b] wave within an [a][b][c] downside structure. Therefore, the decline over the last hour or so would be counted as wave i of the [c] wave down.
Therefore, this now resolves around today’s high. If the market begins to rally impulsively, and takes out today’s high, then I am projecting a 3rd wave pointing us to the 3900+ region. However, if the only things the bulls can muster is a corrective “bounce” here, then we are likely heading down to the blue box below.
As I noted yesterday, if the bulls are unable to stage and follow through on a 5-wave structure, then I may be moving into the “market-has-topped” camp. Now, that does not mean we won’t rally. I still think we are due for a sizeable rally. But, it would mean that I would see the potential of that rally being less likely to take us to new all-time highs.
There are two scenarios though that still could result in new all-time highs even if we go down to the red [b] wave box below. The first would be if we saw a strong extension to the downside that would then provide us a lower low relative to the one struck last week. The market could then re-set the count, and we would again be looking for a 5-wave rally. For now, I don’t see this as highly likely. The other would be for us to continue to rally in 3-wave structures and trace out an ending diagonal for the 5th wave to a higher all-time high. This, too, is not something I would be banking upon as it is hard to rely on diagonals for trading/investing purposes.
So, this leaves us with the bull’s having their backs against the wall. The next 24 hours is going to be rather important to my perspective.