Downside Risk Still Quite Evident

When we broke down below the 2880SPX level back in October, I strongly warned that any further upside that the market may see would not likely be worth the risk of the potential for us to drop directly down to the 2600 region.  Thus far, it seems to have been the correct call.  And, from the 2600 region, we were looking for a bounce, which we had primarily viewed as being a (b) wave.  Again, this seems to have been the correct call as well.

However, I am still uncertain as to whether the (b) wave has completed, or if the market still has more surprises in store for us to provide further whipsaw and a more protracted whipsaw.  This is simply the nature of 4th waves, and we will have certain periods of time where the smaller degree structure will not be clear.

As Bob Prechter noted in The Elliott Wave Principle:

“Of course, there are often times when, despite a rigorous analysis, there is no clearly preferred interpretation.  At such times, you must wait until the count resolves itself.  When after a while the apparent jumble gels into a clear picture, the probability that a turning point is at hand can suddenly and excitingly rise to nearly 100%.” 

From experience, these types of circumstances occur almost always during corrective waves, and most often in 4th waves.  And, if we even venture further into the 4th wave, the b-waves are the biggest culprits of such uncertainty.

As we stand today, I have a number of potential patterns I am tracking in the market.  The minimum target I have for the next drop is the 2530 region, whereas the more impulsive projections point to as deep as 2350-2400.  And, the question is if we drop directly from here, or if there is more (b) wave machinations yet to be seen.  This is a question I cannot answer with a high degree of confidence.  But, what I can say is that the rally off this week’s low does not suggest we have begun a standard impulsive rally for a more extended c-wave of a more protracted (b) wave, presented in blue.  That blue count seems like the lesser likely outcome right now.

This suggests we may break down sooner rather than later.  And, while I have been avoiding the 1-2, i-ii downside structure now being presented on my 60-minute chart, I have to take it more seriously right now.  The main reason I have avoided it is because it projects down to the 2350-2400 region, but I have no confluence points suggesting this as a strong target for this a-wave of wave 4.  So, this still leaves questions in my mind about this potential.

So, should the market break down immediately below this week’s low, then I will be following this more bearish pattern, but will be highlighting the important resistance points along the way.  Should the market take out one of those resistances in its downside progression, it will be a clear sign to me that the 2350-2400 region will not be seen JUST YET.  While I still expect to see those levels and lower in 2019, any break out through a Fibonacci Pinball resistance point during the downside progression of the 1-2, i-ii downside set up would suggest the a-wave is likely bottoming over the 2450 region.

I know I harp on this so many times, but I still want to strongly urge you to avoid trading low probability set ups, as the market has broken many of these both on the upside and the downside while it has whipsawed between 2600 and 2800.  Moreover, I think the better trades to stalk right now is for a potential long trade for the b-wave rally I expect in 2019, which, as I noted last night, can take many months until it completes, and can even reach as high as 3011, as explained in my last night update.

At the end of the day, I don’t think this long term bull market has yet ended.  However, I do think we are in a very large degree 4th wave off within the 5-wave structure off the 2009 lows.  And, my ideal target still resides in the 2100/2200 for this degree of 4th wave.  But, there will be times when I do not have a high probability perspective regarding how we will complete one of the wave structures, and right now, I am still searching for a high probability perspective as to how we complete the (c) wave of the a-wave of wave 4.  As for me, cash remains king, as I am still sitting on the cash I accumulated on the break down below 2880SPX back in October.  And, my goal is to preserve that capital so that I can redeploy that capital when we approach the conclusion of the c-wave of this 4th wave, which I think will occur later into 2019.

Avi Gilburt is founder of