Grinding Below The All-Time High
By
Avi Gilburt
This is yet another instance where logic is thrown out the window, if you are paying attention. Whereas everyone and their grandmother believed that the market was rallying last week due to the peace talks, one has to ask themselves the logical question as to why the market has not dropped strongly now that those peace talks have broken down? Well, the basic reason is that the market is not driven by logic. It is driven by emotion.
Therefore, attempting to utilize logic for trading/investing is akin to trying to discuss logic to your spouse when they are being emotional. How well does that work for you?
With the market pulling back slightly off the recent high, there are two ways we have been viewing this expected pullback. As I mentioned on Friday, there is some potential to view the initial move off the high as a micro 5-wave structure. Therefore, when taking that into account, the spike down in the futures bottomed just beyond the 2.00 extension of the micro 1-2 set up from the recent high – which would complete a potential 5 wave decline for wave i of 1, as seen on the 15-minute ES chart.
However, since we do not know what the structure of that gap down really is, we are only making an assumption that there is a potential 5 waves down for wave i of a bigger wave 1 of the (c) wave in the more immediate bearish view due to us having spiked the 2.00 extension (based upon a micro 1-2 set up off the recent high), which is the standard target for a 5-wave structure. Since we can only make an assumption, that is why it is prudent to be patient and see if the market will provide to us a larger degree 5-wave decline for wave 1 to the target box below, as presented on the 15-minute ES chart.
Should we see that decline in the coming day or two, then it will make it much more likely that we have potentially begun a (c) wave decline towards the 6174-6300SPX region.
However, if the market is unable to provide us with that 5-wave structure for wave 1 of (c), then we will have to switch gears and view this current pullback as wave iv in blue, which portends a much bigger bullish run to 8000SPX as we look out towards the rest of this year.
As an aside, if the market does attempt a higher high from here, I would just view it as a micro 5th completing either a more extended blue iii OR the (b) wave.
No need to complicate this any further.
