Need To Watch This Carefully

While the yellow count 1-2 downside set up was invalidated yesterday with the rally over Monday’s high, it may still come back into play.

The rally yesterday approached the 1.618 extension of waves 1-2 to the upside.  And, when the natural wave 3 seemingly came up short of the 1.618 extension (the standard target), oftentimes the b-wave (in this case it would be an x-wave) can come back to strike it before declining in the c-wave (in this case a y-wave) to complete wave 4.  This may be what we are seeing right now.

So, again, ideally the 5474ES region should hold as support for this wave 4.  However, if the market provides us with 5 waves down off yesterday’s high, then I will have to again reconsider the potential for a 1-2 downside set up developing in the yellow count again.  For now, I am counting this drop as only 3 waves down.  I would want to see a 4^th wave bounce and a lower low to provide us with a better 5-wave decline for yellow wave 1 down.

But, due to this decline, we have to go back on our toes, as the yellow count may be rearing its ugly head again.  Remember, b-waves are terribly treacherous, and this one is no different.  And, should we see a more direct break of the 5424ES region, then I would have to adopt the yellow count for now, and will come up with an alternative at that time.