On Our Way - Market Analysis for May 26th, 2022

There are a quite a number of items I want to address in today’s update, so please bear with me (no pun intended).

As I noted at the end of the day in an update in the trading room, the ideal action we should have seen this morning is a gap over the downtrend line, and a continuation move that is indicative of the heart of a 3rd wave rally. I believe this is what we are seeing today.

I have added a micro count on the 5-minute SPX chart, in which you can see that I am counting the current move as wave [3] of [iii] of iii off the recent lows.  This means that I we can soon see a wave [4], which should hold the 4034/35SPX region.  Moreover, I think it is reasonable to assume that wave [iii] of iii will have a hard time moving past the prior resistance in the 4090SPX region, and that we can see wave [iv] of iii pullback before we are able to break out through that resistance.  However, if the market should surprise us with a direct break through, then the market is likely providing us with a strong message. 

Therefore, as long as we continue to hold support, I am expecting we will subdivide higher in the coming week or so to the 4150+ region.  Ultimately, we should not see any break down below 4010/20SPX, or else the market may be telling us that a standard Fibonacci Pinball structure is not taking shape to the upside, and it can have many ramifications.   

The next point I want to make is that the daily SPX chart MACD has now curled up for the fist time since we began this c-wave down.  This strongly supports the potential that wave [4] has indeed completed, and that we have potentially begun wave [5].  Now, this brings me to the point in which everyone is ultimately interested.

The way that I will be much more confident that we have begun a rally to new all-time highs is by completing this large degree 5-wave structure.  That means we have to continue to subdivide in wave iii to 4150+ in the coming week or so, pullback in wave iv, and then complete wave v to complete all 5-waves off the low for wave 1 of [5].  Until a 5-wave rally at that wave degree completes, I cannot be highly confident that we are heading to all-time highs to complete wave [5].  So, should we continue to rally towards the wave iii completion, I will likely again warn you to reduce your exposure until we are confident that the market completes all five waves off the low.   This is the same warning I provided to members in the 4630SPX region a few months back.

This now brings me to another question which has been asked of me several times over the last week:   Why did you not provide another “danger box” on this rally?  Well, the simple answer is that when you get to certain point in the downside, and the market then rallies in a relatively clear 5-wave structure, it negates the need of a danger zone, as it becomes a less probable region of reversal to lower lows. 

Now, I want to discuss something quite troubling that I have been seeing over the last several weeks in our trading room.   While sentiment has been exceptionally negative, it has certainly had its affect on our members. To this end, we have seen too many members attacking others in the trading room chat.  Therefore, I am going to respectfully request that we each remember the purpose for which we have a chat room . . . and that is to help each other within our community.   I know that negative sentiment causes people to feel and act negatively, so I want to bring this to your attention, and remind you that we should be respecting and helping each other within our community.  So, please consider your post before you present it on the board – is it to help others or to attack others?  Thank you for your consideration.

Lastly, I want to remind you that the labeling of my prospective wave degrees are not meant to be used for timing purposes, as they are simply for illustrative purposes for the path I would expect us to take.  Moreover, I would not be surprised to see the market provide stronger extensions than what I am showing on the 5-minute chart to provide us with a larger wave 1 off the lows.

For now, the market is doing what it needs to do to develop a 5-wave rally structure off the recent lows.   As long as we continue to hold support for each pullback wave degree within this Fibonacci Pinball structure, then we can continue to look higher.  And, once we complete all five waves off the recent low, then we have a strong indication that the market is preparing to rally to new all-time highs.  Until such time, all we can do is follow the market’s messages that it provides to us during this subdivision higher.

Avi Gilburt is founder of ElliottWaveTrader.net.