I Don’t Trust Either Side

Not only have we now spent 4 days in the same region without the market tipping its hand regarding green or yellow, the proportions we have seen thus far do not provide us further clarity either.

You see, the drop off the 2815 corrective rally high in the S&P 500 (SPX) has taken shape in 3 waves thus far, wherein the 3rd wave down is equal to .764 the size of the first wave down.  That is an unusual point for it to bottom whether you view this as continuing in the green structure to levels below 2500, or as a yellow b-wave pointing us back up over 2800 SPX.

To be honest, by going straight up before striking the 2600 region, the market has left too many options open in this region.  The current rally can be a 4th wave in a downside structure within green wave iii of 3, it can even be a 2nd wave in a downside structure (blue), and it can even suggest the b-wave may have completed at the .764 extension (which is not a common extension for an a-b-c structure), and that we are starting a c-wave rally to 2845+. 

And, when we do not have clarity, it is tough to place money at work.  Unfortunately, clarity will not likely be seen unless we see a break down below 2585 SPX, or until we see 5 waves completed towards the 2745 SPX region as presented as alt1 in yellow. 

Trying to trade aggressively in this region will open you up to further whipsaw, as I don’t think any side has a major edge here.  However, as long as we remain below 2683ES (yes, that is modified higher from the weekend analysis by 3 points), pressure still remains down.   But, between 2683 ES and 2725 ES is truly no-man’s land, at least until the market is able to complete 5 waves up to signal that the c-wave rally in yellow has begun.  And, yes, trading the long side aggressively until the market completes 5 waves up towards 2745SPX puts you in danger of trading in the face of a potential 3rd wave down (presented in blue).

While the market will often provide us with relatively clear patterns to generate probabilistic perspectives regarding the next larger move, we are at a rare point in time where it has not tipped its hand one way or another.  And, until this region resolves, I have no clear indications suggesting one side has an edge on the other.  So, I am forced to wait patiently until the market tips its hand.  When this region does resolve, I think it will make the bigger picture much clearer.

Avi Gilburt is founder of ElliottWaveTrader.net.