Impressive Rally - Market Analysis for Oct 12th, 2020

Today’s continuation rally in the SPX is certainly quite impressive.  In fact, the market took us directly to the [a]=[c] target in the SPX today, and even exceeded it by a few points – SO FAR.

So, does the fact that we rallied here in a hurry change my perspective?

Absolutely not.

You see, we have seen many strong b-wave rallies throughout the years, and history shows us that some of the strongest rallies seen in the market occur during corrective waves.  In fact, the b-wave seen in the SPX into the February 2020 high was the largest I have ever encountered in my professional career. But, as we know, that is not truly dispositive on its own.

We have now come up to the 3550SPX region – which is just over the resistance region I was highlighting for a b-wave rally.  And, I can still reasonably maintain my primary count of this being a [c] wave rally within the bigger b-wave.  Yet, how the market pulls back in the coming days will likely be the main factor which may force us to adjust our expectations.

We now have to watch the 3439-3466SPX support region over the coming days.  Since the market has just about struck the 1.236 extension in the yellow wave structure, it would suggest that the .764 extension is the main level upon which we should be focusing.  That means that the 3466SPX support SHOULD hold if the market intends to take us to new highs in the more immediate bullish count represented in yellow.

However, if the market breaks down below the 3466SPX support, and follows through below 3439SPX, then the door has been opened for the c-wave down to the 3050SPX region.  

As far as to when I would turn immediately uber-bullish?  Well, until we have completed a full 5 waves up to new highs, I cannot view the yellow wave 1 of [3] of [iii] as having completed.  And, we can even go higher in the coming week and this can still be a b-wave.   But, if we do complete that 5 waves up for wave 1 in yellow, and then see a corrective wave 2 pullback in the coming weeks, I will turn immediately uber-bullish on a follow through break out over the high of wave 1 (whatever it is should we complete it), and look directly to the 4250SPX region for wave [3] of [iii] in the SPX.  And, I would expect that price action to mirror the manner in which we have been rallying of late, in other words, that would be a strong segment to this larger degree 3rd wave.

However, the market still has a lot to prove to me for me to adopt that perspective.  Remember, there are still a lot of larger cap stocks which still suggest that c-wave down I am expecting in green.  So, unless the market proves to me the yellow count over the coming week, I am looking for a break down below 3439SPX to suggest the c-wave down has likely begun in earnest.  Until such time, I will continue to ride the long positions I have been buying since March 2020, and will only meaningfully hedge those positions when the market makes it clear that we are breaking down below the 3439SPX support in impulsive fashion to signal that the c-wave down has begun.

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Avi Gilburt is founder of ElliottWaveTrader.net.