As I have been saying since we were down in the 2500’s in the SPX, this market is still likely set up to rally to the 3000 region and potentially as high as 3225SPX. So, our goal is to remain focused on the long side of the market, even though the corrective nature of the market over the last 5 months has worn many down. That is what corrections do.
So, as the market continues to chop around up here, I am still trying to be patient so I can best determine where the next buying opportunity will arise. Along those lines, yesterday afternoon, I outlined the three potential patterns I have been following, each pointing to a deeper pullback yet to come. And, the one additional note for today is that today’s pullback has made the red count a bit less likely.
Based upon today’s action, the pattern I am following is the yellow wave structure. And, within that structure, we would need a larger degree wave iv before we can complete 5 waves up for yellow wave 1. Yet, I still am not certain that wave iii has completed yet, since I can only count a clearly completed 3 of the 5 waves needed for wave (v) of iii, as shown on the 5-minute ES chart.
Now, since I am still trying to “feel out” how the market will set up to rally to 3000 and potentially much higher, I am not doing anything aggressive in this region when it comes to trading the SPX from an intermediate term perspective. And, the main reason is that the market has still not tipped its hand as to how it wants to rally to 3000. There are still several paths it may take, and it has not provided us with a higher probability path. So, when the market hides its near-term intentions, we need to remain patient.
But, ultimately, you should be looking for opportunities on the long side, especially if the market can provide us with a sizeable pullback in the coming month or two, whether that be in the yellow or purple count. Also, remember that, sometimes, it takes two entries to get a trade right. For example, if we view the yellow count as primary, and you enter longs on the pullback for wave 2, you may get stopped out if the market really has the intention of pulling back down to the 2600-2650 region in the triangle. So, please remain nimble and patient, as it may take two attempts to board this train to 3000+.
Lastly, as long as the market does not attempt to push higher and top out at 2823SPX, I think the chances of dropping below 2500SPX have been reduced, at least based upon the action within the micro-structure I have seen today. For now, I will be primary tracking the yellow wave structure, with the alternative being the triangle in purple. As things develop, we may have to adjust. But, that is the nature of non-linear markets. I just want to make sure we can find an appropriate opportunity to add positions in the index on the long side for the coming run to 3000+.