Looks Like 5 Waves Down

We have been waiting for the market to tip its hand.  And, today, we may have seen it finally do so.

Since we struck a high yesterday, and I warned you about risk management as we were hovering near yesterday’s high, the market now has a reasonable 5-wave decline in place.  While I am writing this update, it looks like we are trying to complete wave v of wave 1.   

What this means is that should the market find a bottom to wave 1 in the coming hours, we would reasonably expect a wave 2 bounce.  Once the market bottoms, I will post the wave 2 bounce target in the main chat room.

Now, should the market provide us with that 1-2 downside set up, and then begin another 5 wave decline for wave i of wave 3, then we will be looking for a c-wave decline to the support box on the 60-minute chart, which should complete the y-wave of the larger [b] wave we have been tracking.  Further confirmation should come on a break down below 3970ES as well.

As far as our target, I slightly modified the top to the target box to 3874SPX, which is where c=.764*a.  But, the ideal target is actually 3811, wherein c=a.  I also dropped the lower end of the box to the 3709SPX region, as there are multiple points of confluence in that region as well.  But, ultimately, the target will be best identified after we complete wave 3 down in the c-wave, as it will all depend on just how extended wave 3 to the downside becomes.

As far as alternatives, well, I have a hard time maintaining an alternative for a higher high in wave 1 going higher in the more immediate sense.   Clearly, breaking out over yesterday’s high would invalidate this downside count and bring back that potential.   But, due to this 5-wave decline, I am seeing that as much less likely.  Yet, we will want to make sure that any rally is corrective in nature to make sure we are dealing with a wave 2 corrective rally.

So, in summary, I think the market is pointing us lower in the near term.   And, corrective bounces can be shorting opportunities for those who are so inclined.  Once we get the bottom in place and a bounce to begin, I will set the parameters.  And, I am going to expect a bounce as long as we remain over 3970ES.  Below that, and we may have a series of 1’s and 2’s to the downside in place already.

Avi Gilburt is founder of ElliottWaveTrader.net.