Slight Change In Smaller Degree Structure

Well, last week’s failed break out seems to have been an initial warning that this rally was not going to go smoothly.  In fact, due to today’s pullback after another break out, it is unlikely that the market is going to continue higher in a standard impulsive structure for wave [v] of iii, if it is going to continue at all.

First, I want to state that my primary count is still pointing higher before we begin the bigger pullback I am looking for in the first quarter of 2022.  And, I still prefer that we attack that 4900SPX region before we complete the larger degree wave [3] of [iii] off the March 2020 lows.   

But, the structure we are getting now seems to be pointing towards an ending diagonal due to all this overlap.  Remember that diagonals look like corrective structures, so they are quite complex and somewhat variable, and often hard to predict on the micro level.   But, I am still going to try.

I have slightly modified the structure on the 5-minute SPX chart, as you can now see.  The wave [3] within a diagonal usually targets the 1.236 extension of waves [1] and [2], and sometimes can push as high as the 1.382 extension.  So, that is my next target.  However, I would rather us hold the 4700SPX support and head there sooner rather than later.   But, in truth, this structure does not invalidate until we break back below the wave [2] in the 4672SPX region.   

However, should we see a break down below 4672SPX, then I have to consider that wave iii of 5 of [3] of the larger degree structure actually completed today, with a pullback having begun for wave iv, as shown on the 60-minute chart.  And, yes, that green iv is support our larger degree upper support.  And, should we push higher in the coming days for wave iii, then wave iv will also be adjusted higher, since it is based upon retracement percentages of wave iii.  

And, as I have said many times, the one thing that keeps me immediately bullish is the IWM.  Not only have we now dropped into the MACD support region, but the rally today can be considered a 4th wave in the c-wave of wave [iv], which means we can still see one more marginally lower low or even a double bottom before we begin the next rally in earnest.  But, the bigger picture still looks well intact, despite the depth of this pullback.  Remember, IWM runs a lot wilder than the SPX on both the upside and downside.  So, I cannot say this is unusual.  Yet, interestingly, not only has the MACD pulled back into support, but today’s action actually sets up a small positive divergence bottoming potential on the 60-minute MACD.  And, as long as we hold 230, I have to look higher.

But, make no mistake about this pattern in SPX.  Due to not likely maintaining our Fibonacci Pinball structure, it will likely make trading a move higher much more difficult since it will likely be much more volatile than a standard Fibonacci Pinball structure.

For now, we have our parameters that keep us looking higher.  So, please use them for risk management purposes.  

In the meantime, I want to reiterate that I still expect a larger degree pullback in the coming months which will set up the rally to 5163+, with an ideal target of 5500SPX, which can even be struck by the end of 2022.  So, be prepared for a lot of up/down action in the coming 3-4 months.  

5minSPX
5minSPX
60minSPX
60minSPX
IWM60min
IWM60min
Avi Gilburt is founder of ElliottWaveTrader.net.