Expanded b-waves, as seen this morning, are not terribly common, but they do cause serious whipsaw to market participants. In our case, the IWM gave us some hints this morning with the fact that it did not break below yesterday’s low, which maintained its set up to rally for a larger degree (b) wave structure.
Whereas the ES dropped below 2804ES overnight, I posted early this morning that if we were able to move back through 2804ES, it would seriously question any immediate downside follow through and open the upside for the possible completion of a more expanded (b) wave.
As we can see from the attached 3-minute IWM chart, we have a relatively clear 3 wave move off the 7/30 low, followed by a corrective 3-wave retrace, which we caught at the bottom yesterday, and we are now completing a 5-wave c-wave higher. This is a rather straight forward (b) wave structure, which should now lead us to a (c) wave lower, as shown on the 60-minute chart.
As I mentioned last night, and many times before, b-waves are often the most difficult segment of the corrective structures, as they are the most variable waves within the corrective a-b-c structures we track. Today proved that true yet again.
While many now “feel” that we have certainly bottomed in the SPX due to how strong this rally felt today, we must remember that corrective rallies are often the strongest “feeling” rallies we see. For those trading during 2008, you would know this to be true.
At this point, both the 60-minute charts for the IWM and SPX now have the appropriate “look” for a (b) wave, and I still think we can see that (c) wave lower in the coming week.
But, just because we saw a seemingly strongly rally in a c-wave today does not mean I should abandon the larger perspective which we have been tracking. We really should still see a (c) wave lower to complete the wave (ii) in IWM and the b-wave in the SPX. While it is certainly possible that we can head to higher highs from here, standard expectations have me maintaining a primary count seeking a (c) wave lower in the coming week.
From a smaller degree structure, I have included the 3-minute ES chart. I am primarily counting this rally today as the 3rd wave of the c-wave, which means that as long as we hold over the 2817ES region, I would expect a 4-5 to complete this c-wave of (b) in the ES. Alternatively, a break down below 2817ES, which follows through below 2813ES would suggest that the (c) wave down has begun, especially if that drop takes shape as a standard 5-wave structure.
Lastly, as I also warned last night, most members should be planning their buying for the run to 2935SPX rather than attempting to short for a drop in a bull market. And, yes, based upon our standards, I am still expecting more of a pullback in the coming week, especially due to the structure represented most clearly in the IWM.