Despite the action over the last several weeks, the market has still not given us a clear indication that it wants to rally to 4300+. Yet, it is still retaining the potential for a leading diagonal off the recent low.
Within the potential for a leading diagonal to begin a [c] wave rally, today we topped at the 1.236 extension of waves [i][ii], which is a typical target for a 3rd wave in a diagonal. So, it is still very much alive. Yet, as I have made quite clear, it is also not terribly reliable at this point in time.
Furthermore, if we do see a leading diagonal, then today’s drop seems to be an a-wave in wave [iv] within the diagonal, as shown on the 5-minute SPX chart. So, ideally, we can see a rally back to today’s high for a b-wave, followed by a c-wave down to complete a flat for wave [iv]. But, keep in mind, I am trying to prognosticate a 4th wave within a diagonal, so this is truly jello at its best.
Another point I want to make that I noticed today when running projections is presented by a change in wave degrees on the smaller degree wave count. It would seem that if we are indeed able to complete a leading diagonal, it may only be wave i of wave 1 of the [c] wave. You see, if we complete a leading diagonal, a 1-2 structure with this leading diagonal does not project beyond the 4100SPX region using standard extensions. So, I have modified my view of a potential leading diagonal as only being wave i within wave 1. And, should this play out, then it would make the [c] wave target more likely in the 4500-4600SPX region.
But, I am getting way ahead of myself by noting those projections. Remember, we still have not even completed a leading diagonal. So, there is nothing to really rely upon at this time from a high probability perspective.
So, I am certainly leaving the door open for the bulls to prove themselves. But, should we break down below 3780SPX before completing a leading diagonal, then that will open the opposite door for a test of the 3720SPX region, which, if broken, points us down to the 3600SPX region for a larger degree [b] wave.