Fear Seems To Be Rising

With the market not pulling back in what I am counting as wave [2], I am seeing signs that people are getting very concerned of a bigger top being struck.  Well, I have one thing to say about that – as long as support holds, there is nothing to fear.

In fact, not only have we been holding support up here, we even held a very shallow support at the .236 retracement of wave [iii] in this current pullback for wave [iv].  That is ordinarily quite bullish.

And, to keep this really simple, as long as the market holds the 4650SPX region (the bottom of the wave [2] support box), then I am looking for this [1][2] structure to point us north of 4800SPX in the coming weeks.

In the meantime, as I am writing this, the a-wave of wave [2] pulled back right to the .382 retracement of wave [1], followed by a corrective b-wave bounce.  So far, this is textbook Fibonacci Pinball for 2nd waves.   After this b-wave completes, either with a rally back up into the resistance box again on the 5-minute ES chart, or if we develop a b-wave triangle, I am going to expect a c-wave lower to at least the .500 retracement in the 4667SPX region.  But, I would much prefer a drop to the 4657SPX region and the .618 retracement.  Of course, the market can choose to head down there directly, but I think it would make a bit more sense from a proportionality standpoint to take some more time in this b-wave.

In the meantime, I am going to repeat the main point I am trying to make – as long as this pullback holds 4650SPX, then I am looking up to 4800+ to complete wave iii of 5 of [3].  But, as I also warned in prior updates, this would be a point in time where one can begin to raise cash, as there is some potential that this could complete wave [3], which is the alt [3] in yellow.   Remember, when we move over 4800SPX, then the upside potential becomes much smaller relative to the downside potential in wave [4], and should be respected.

I want to conclude with one final point.  While the IWM has dropped a bit lower than I had ideally wanted to see, we are still well within the confines of a reasonable wave [iv].  But, please take note that we re now approaching the oversold region in the MACD at which prior rallies have begun.  While we can certainly go deeper into it, we really have hit that minimal target (yet we may still see a 4-5 to complete this c-wave of [iv].  

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Avi Gilburt is founder of ElliottWaveTrader.net.