Fourth Wave Shenanigans?

In the trading room yesterday, I posted that I am surprised how well behaved this 4th wave had been acting.  I was surprised that we had not been given any truly complex structures to deal with, especially during a b-wave.  Well, it seems I spoke too soon.

With the rally we had today, the market has given us a complex structure which we now have to navigate.  If the market continues to rally into tomorrow,  then we likely will be completing the (c) wave of the green b-wave much sooner than I had expected.  The minimum target for such a move would be the (a)=(c) level at 2393SPX, but the 1.382 extension of the (a) wave actually points right to the 2410SPX region which we fell short of in wave (iii).

While some may attempt to classify a further rally as only the top of the (a) wave of the green b-wave, I am not a fan of that pattern. Such a pattern would likely make this wave (iv) too large from a timing perspective if we are going to abide by the rule of alternation.  Such a larger (a) wave would push this 4th wave out for at least another month, and that would then make wave (ii) and (iv) almost equal in time.  So, if we do continue higher this week, I am going to maintain the perspective that is all the (c) wave of the green b-wave.

However, as I noted before, we may still see more complexity if the market has topped in a b-wave of the yellow b-wave in an expanded flat.  While I cannot say that this is a high probability potential, I would say that it is supported by the pattern in the Russell index.

The one way this (c) wave can take more time is if it traces out as a larger ending diagonal.  That could conceivably take us all of this week and most of next as well, especially if the market has the intention of targeting the 2410SPX region.

So, it really has been quite easy for a 4th wave pattern until today.  But, some complexity in a 4th wave was inevitable to be showing up.  And, now that it has, we have to deal with it, and it will take more patience as the market may not tip its hand until Friday before we have a better understanding of whether we have certainly begun the (c) wave of the green b-wave, if that pattern will be an ending diagonal, or if we get a really nice curve ball by seeing the alternative yellow (b) wave take hold into the end of the week as an expanded flat.

Avi Gilburt is founder of