Not The Cleanest Of Rallies

Well, as we have seen, the market has just barely held onto our ideal support and we seem to have begun a rally.  

Normally, a [c] wave is a standard impulsive structure.  That means that waves 1, 3 and 5 all take shape as standard 5-wave structures.  Unfortunately, the rally off yesterday’s low is somewhat overlapping, especially in the futures. This leaves us with the potential that wave 1 of the [c] wave of wave 5 is a leading diagonal.  While not the most ideal of trading signals, I am willing to give this some room to prove itself.  

The first hurdle we will have to overcome is the 4170ES resistance.   Should we be able to exceed that resistance in a sustained fashion, then I would want to see a leading diagonal completed in the ellipse target on the 5-minute SPX chart.  Thereafter, should we see a corrective wave 2 take shape, those that would like to trade this move to the long side can buy into the corrective 2nd wave pullback and place stops at yesterday’s low.  Again, my ideal target should be at least 4311-16SPX.  

For those that have followed me for some time, you know that I am always looking at the charts to identify where I can be wrong in my primary assessment of the market.  And, that is represented on the attached 5-minute ES chart.

As you can see, I am tracking a potential 5-wave decline off the recent high, as presented in red.  That makes this rally a wave iv, as long as we are not able to exceed the 4170ES region.   Should we hold resistance, and then make a lower low below that struck yesterday, I would consider that a 5-wave decline off the recent high.  And, that would be a VERY strong warning that we may not get to the 4300+ region.

While a 5-wave decline at this wave degree is not going to settle the question between the green and yellow pullback scenarios I have outlined many times, a 5-wave decline does strongly suggest that a top has likely been struck, and a larger pullback has likely begun.  It will be confirmed with a corrective rally thereafter, followed by a break-down below the low of the initial 5-wave decline.  And, as it stands now, I am assuming that will be at some point over the 4050SPX region, and potentially in the 4085SPX region.

So, the bulls have their work cut out for them in the near term.  In order to keep pressure to the upside and our 4300+ target, we will have to continue into tomorrow towards the ellipse overhead.   Yet, if they fail, and the market makes a lower low, we have to change gears and begin to look lower and assume the next larger degree pullback has begun.

As an aside, Mike, Zac and I will not be in the room starting on Thursday night through Saturday night due to the religious holiday of Shavuot.  Garrett will be running several rooms and Jason will be helping.  So, PLEASE have consideration for Garrett's time and workload.  

Also, updates will not likely be out until Sunday.  Since it is a long holiday weekend, that should cause any problems.  Have a good and safe long holiday weekend.

Avi Gilburt is founder of