Pullbacks Have Become Almost Extinct

With the market topping out in the resistance region we highlighted, the pullback we saw was truly quite shallow, with most of it occurring in the overnight session.  But, is that all we are going to get?

While I can count the shallow retracement in several ways, I have outlined many times in the past that pullbacks are what give us our bearings in the market.  Second wave pullbacks most often provide us with standard .618 retracements, whereas 4th wave pullbacks provide us with .382 retracements.

Thus far, no 2nd waves have provided us with standard pullbacks for over a year.  And, this one may be the same. 

The overnight low was 3348ES and until we break below that level, we really cannot be more certain that a standard 2nd wave pullback in the SPX can be seen down towards the 3300 region.  Most specifically, micro support is now at 3373ES, and until we break down below that level in the immediate sense, the market has opened a door to continue to extend higher with shallow pullbacks being the continued motus operandi. 

So, as long as the market can hold below the 3383/88 micro resistance we pointed towards yesterday, I can still reasonably expect more of a pullback in the market, but we need to see an immediate break below 3373ES to make it a higher probability.  However, if we are able to break out over that region and continue through the 3400 region, then that opens the door to the heart of the 3rd wave in wave [5] of iii.  So, overall, not much has changed in that respect from last night’s analysis.

The additional point I would like to make tonight is that I am still expecting the IWM to “catch-up” in a 5th wave to the SPX.  And, if the SPX does break out in DIRECT fashion from here without more of a pullback, I see a set up in the IWM which has the potential to significantly outperform the SPX.

As you can see from the attached 3-minute IWM chart, IF the market does break out directly from here, and the IWM is able to move through the 171 region, then the 169 region becomes support, and I think we can see a relatively fast move to the 185/86 region in the IWM, as shown on the two charts attached.   Again, this is dependent on a direct move higher from here.  If we see a pullback first, then this potential will morph and I will adjust it should we see that pullback.

But, ideally, as long as the SPX remains below 3383/88, then I can still reasonable expect more of a pullback before the next larger rally takes hold.  However, if strength continues directly through 3400, that becomes a much lower probability, with the more likely path becoming a more direct break out.

3minES
3minES
5minSPX
5minSPX
60minYellow
60minYellow
3minIWM
3minIWM
60minIWM
60minIWM
Avi Gilburt is founder of ElliottWaveTrader.net.