The Bounce Is Here

With the futures dropping to within 25 points of the .236 retracement and the top of our target/support box on the 5-minute SPX chart, we seem to have completed our (a) wave decline.   That likely means that we are now within the (b) wave bounce.

Normally, we expect the a-wave within the (b) wave to bounce back to the .382-.500 retracement of the prior (a) wave decline, followed by a b-wave pullback, thereafter leading to a c-wave rally towards the .618 retracement of the (a) wave decline to complete the (b) wave bounce.  And, thus far, the market seems to be complying.

Now, I know that there will be many of you who are going to want to aggressively short the top of the (b) wave rally.  But, this is the point in time wherein I remind you that this market has not been kind to the short side.  Therefore, it is prudent to allow the (b) wave to complete, and to wait for a CLEAR 5-wave decline thereafter for wave 1 of the (c) wave down.  You can then choose to short the wave 2 corrective bounce if you want to short this set up, and use the high of the (b) wave as your stop.   That is the lowest risk manner in which to trade for a potential (c) wave decline.

As we move through this structure we will likely have to modify some of our targets based upon the manner in which the market is taking shape in the coming weeks.  But, overall, this initial (a)(b)(c) structure remains my general expectation in the coming weeks.