Looking For 5-Up

After hitting the .500 retracement of the February rally in the SPX, we are now approaching the prior all-time highs again.  And, with that, the potential to complete wave i of 3, as shown on the 5-minute SPX chart.

For the last several months, I have been lamenting for an appropriate 2nd wave pullback, as all pullbacks have been quite shallow.  With this pullback dropping to the .500 retracement of what I am counting as wave 1 of [3], it makes it rather easy to count it as a wave 2 of [3], as long we now complete a 5-wave rally back towards the highs.  This is the set up for which I have been eagerly waiting, along with an appropriate wave 2, in order to give us our bearings as to where we stand in the market structure, along with providing us with advance warning of the break out set up in wave 3 pointing towards 4300SPX.

Now, the downside of what I am seeing is that the structure off yesterday’s low is not anywhere near an ideal Fibonacci Pinball structure.  While I surmised yesterday that we may even have to accept a leading diagonal for wave i of 3, I noted that we really had to get back up towards at least the prior highs to even consider that.  And, I still feel that way at this time.  So, while the market has now moved through our initial resistance region, I am going to keep an open mind that it is attempting to complete wave i of 3 in the coming days.

Should we be able to complete wave i of 3, I would still expect a wave ii pullback, as outlined on the 5-minute chart.  Moreover, should we see that i-ii structure develop over the coming week, and then see a break out over the high created for wave i, that is a strong signal that wave iii of 3 is underway, and pointing us to 4300SPX, with the next resistance region overhead being the 4060SPX region.  

For now, I am going to remain cautiously optimistic.  And, should the market be able to complete the i-ii structure in the coming days, and then break out over the high of wave i, then I will outline the appropriate supports to watch, as we begin to target the 4300SPX region.  

Alternatively, should the market fail to complete wave i, then we will likely retest the 3775-3800SPX region before we see another break out set up.  As noted many times before, as long as we remain over 3775SPX, I am looking for that break out set up for wave iii of 3.  However, a break of 3775SPX opens the door to the alternative wave [2] in yellow.

Avi Gilburt is founder of ElliottWaveTrader.net.