Setup Now In Place For A Rally Into The End Of The Year and Beyond

Yesterday we saw a strong push higher following the FMOC meeting thus giving us the initial confirmation that we had formed a bottom in the green wave (ii) at the 4605 level. At the time of the close yesterday we still only had three waves up off of that 4605 low and I was looking for another minor wave iv and v to complete to fill out our wave (1) before retracing for the wave (2). That wave iv and v came in the overnight action as shown on the ES chart and we appeared to have already put in a top in the wave (1) of the wave (iii). This now makes the retrace that we are seeing today the wave (2) of that wave (iii) which is giving us a setup to push higher towards the 4900-5000 area in the coming weeks and months before topping in the larger degree wave (3).

Zooming into the ES 15m chart we can see that support for the wave (2) currently comes in at the 4686-4629 zone. This is the zone that I would want to see hold if we are indeed going to maintain the most immediately bullish setup for the green wave (2) bottoming count. If that zone does indeed hold then I would want to see a push back up over the 4743 high and then through the 4763 level which is the upper end of the wave (i) pivot to give us the next level of confirmation that a bottom is indeed in place. From there a move through 4815 then gives us the final level of confirmation that we are indeed heading higher towards the 4900-5000 zone into the new year. 

As far as an alternate count is concerned I will leave the red count on the board for the time being but as long as this is trading over the 4628 level I am not viewing this as a highly probable path forward but I do have to still allow for it as it is technically possible and really the only viable alternate path that I can see at the moment that could potentially take us down to new lows from these levels. The purple count from yesterday did officially invalidate with this push higher so the red is really the only viable bearish alternate path I have left on the board.

In summary, this is following a fairly textbook fib piball pattern and is set up to push higher in the weeks and months ahead. We have now developed a back-to-back series of nested (i)-(ii) (1)-(2) waves which is the optimal and the most reliable pattern in Elliott Wave to trade out of. These nested setups are a high probable setup and will follow through the vast majority of the time and provide traders and investors with clearly defined entries, exits and stop / invalidation levels on a very favorable risk to reward ratio. This is really the most we can ask for when attempting to navigate dynamic and non-linear markets. So regardless of whether this particular setup does end up this past week has proven to be an excellent example of how to effectively navigate the markets using Elliott Wave. For those who are interested, I did review these setups in more detail in the beginners circle weekly webinar and I would highly recommend viewing that video if you are new to Elliott Wave or trading in general. 

Finally, I will leave you with one of my favorite quotes from "The Socionomic Theory of Finance":

"The vast majority of speculators, who buy when prices are elevated and sell when the markets falls, do not feel nervous and fearful upon acting; they feel relieved. They do not know then have actually increased their chances of losing or reduced their chances of gaining because unconsciously they have acted to reduce the discomforting feeling of missing out on gains or risking losses. Because their risk actually increases by both sets of actions, we may confidently conclude that such behavior is non-rational.

If you want to meet speculators who consciously take on risk, seek out the few who buy when others are panicking or sell short when the crowd is giddy. On taking the action, they will be nervous if not downright fearful, because the conscious portion of their minds understands they are taking on risk, and the unconscious portion is screaming not to do it."

ES 15m
ES 15m
SPX  60m
SPX 60m
Michael Golembesky is a senior analyst at ElliottWaveTrader covering US Indices, the US Dollar, and the VIX. He contributes frequently to Avi's Market Alerts service at EWT while also hosting his own VIX Trading service.