Do Not Play The Short Side

One of the first rules about trading that I learned early on (the hard way) was that you should NEVER trade the short side during a 3rd wave.   While there may be times you enter a small trade prematurely on the long side, the action in a 3rd wave will often save you from such bad entries.  But, shorting during a 3rd wave has no similar savior.

So, with my perspective that we are now in wave 3 of [3] of [iii] off the March 2020 low, I hope you take this advice to heart.  You use corrective pullbacks for long positions and NEVER attempt to trade the short side during a 3rd wave.  

Within this perspective, I posted something early on this morning to make my perspective rather clear:

OVER 4040SPX, CORRECTIVE ACTION IS A BUYING OPPORTUNITY WITH A TARGET OF 4370-4440.

IT TAKES A BREAK BELOW 4010/40SPX TO PUT THIS COUNT IN JEOPARDY.

AS WE GO HIGHER, WE WILL RAISE THOSE SUPPORTS.

Let me take a moment to explain my targets.  First, the 4440SPX region is the 1.00 extension of waves [1] and [2], which is the minimal target we often see for wave 3 of [3].   However, waves 1 and 2 within wave [3] do not project a standard target we would normally see for wave 3 of [3] which matches the larger time frames.  Therefore, I almost have to expect to see some sizeable extensions over the coming weeks within wave 3 of [3].  So, I think the minimal target I can accept is the 4370SPX region which is the 2.00 extension of waves 1 and 2.  

I also want to note that this is the only factor that now gives me any pause when it comes to the general wave count I am presenting at this time, since not every wave degree matches up.  Whereas waves [i][ii] and [1][2] align quite well with each other, waves 1-2 within wave [3] is coming up a bit short, as I just noted.  But, oftentimes, this is the segment of the count where we see strong extensions, so I am not as concerned about this at this time.

What is much more important is that the market continue to respect our pivots and supports as we continue higher.  Currently, I really would not want to see the market break below 4040SPX, whereas a follow through below 4010/20SPX support would place this count in serious jeopardy.  So, for now, as long as we remain over 4040SPX, I am looking higher to our next target of 4150+ for wave iii of 3, which you can see on the 5-minute SPX chart.

This is the segment of the trend for which I have been patiently awaiting.  And, if we continue to respect the supports outlined, and continue along the path I have laid out, we SHOULD see an imminent break out through the trend line overhead shown on the 60-minute SPX chart, which has held us in check for months. 

When we are in the heart of a 3rd wave, we oftentimes see the market move from the lower channel into the upper, more accelerated, channel, which is how I am currently presenting our wave count.   This is also the point in the trend that Bob Prechter has called “the point of recognition.”  It is where the market just breaks out in strong fashion, wherein everyone begins to recognize that we are in a bull market with much higher to run.  And, that is why this segment of the trend often sees strong extensions, since this is the time where “the chase is on.”

In summary, the break out over 4050SPX has made it likely that we are in the heart of the 3rd wave per my analysis.  But, it also means that this is the point in the trend where the market now has to make it clear to all market participants that bearish concerns should be abandoned, as most market participants should begin to get on board with the bull market scenario.  

While I know there are appropriate times to be a market contrarian, if we see a gap up and break out through the trend channel overhead on the 60-minute chart, now is NOT the time to be a contrarian, as it would signal that now is the time we run with the bulls.  So, as I started this update, should we get that gap up over that trend channel overhead, please do not look  to the short side for some time, as it will not likely be beneficial to your account. 

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