As I have been outlining of late, there is really no high probability way to distinguish between the yellow and green counts in the SPX, as both counts would suggest a 3-wave rally. And, it is too early right now to reasonably determine between the two.
Therefore, I have been noting that I was going to follow the IWM for clues. And, should the IWM give me a solid 5-wave rally, then I will be more strongly considering the yellow count in SPX, as the IWM would suggest a larger rally in the coming months.
Yesterday, I outlined that the IWM had pulled back to the .382 retracement of wave [iii], which is the common support for wave [iv]. However, today, we decisively broke below that support. While it is certainly possible that the IWM may still attempt to stage a strong rally for wave [v], I have to say that if we do not see strong evidence of a 5-wave initial start to wave [v], then I have to assume that the green count is increasing in probability.
As far as the SPX, we have seen a very strong [a] wave rally. In fact, we are now between the .500-.618 retracement of wave 1 down in the green count. That is considered quite large for an [a] wave. And, while many of you are now asking yourselves if this could be all of wave 2, I will answer that I do not think that is likely.
First, the size of this rally relative to the wave 1 decline is quite disproportionate for it to be considered a strong wave 2 structure. Second, the decline off today’s high (assuming the [b] wave has begun) is a relatively clear 3-wave structure to the downside.
This brings me to my next point. I need to see a sustained break of 4345SPX to begin assuming that the [b] wave is in progress. Yet, I have added a [b] wave target/support region on the 5-minute SPX chart in the event today was the high of the [a] wave. Clearly, if we are to push higher, I will adjust the support/target as well.
In summary, the IWM is on its last leg in being able to prove to us that a larger degree decline is not setting up just yet. So, I am now putting it on a tight leash. And, if the IWM is not going to be able to provide us further evidence this week, then the probabilities for the green count will likely well increase by the time the weekend rolls around.
As a side note, I have doctor appointments tomorrow, so I will be out for half of the day tomorrow and I will be traveling on Friday. Mike will be managing the room in my absence.