That four-letter word is DOWN. In fact, most of the drops we have seen throughout the year do not seem to last more than a few days. Can this time be different?
Well, if wave 3 has indeed topped, and I think it has since broke below the 4373SPX support in the overnight session, then we should be taking a bit more time than just a few days to complete wave 4.
I want to re-print an alert I posted late yesterday afternoon:
“Bigger picture time. If wave 3 has finally concluded, then let's look at the potential path for wave 4. But, please remember, trying to nail down the exact path during a 4th wave is akin to throwing jello for distance.
With that in mind, I will present some standards. Oftentimes, the a-wave of a 4th wave will target the .236 retracement of the wave 3. That is the 4330SPX region in our case. Therefore, I would like to see us continue lower to the 4330-70SPX region to complete the a-wave of wave 4.
Next, since the SPX has already struck its minimum ideal target for wave 3, I have no expectation that we see a higher high in a b-wave. But, it is possible we can retest that resistance in the 4440SPX region.
Since the general target for a 4th wave is in the .618-.764 extension of waves (1)(2), that would suggest a target of 4165-4270SPX. Moreover, the ,.382 retracement of wave 3 is also a reasonable target for a 4th wave, and that is in the 4240SPX region. Furthermore, since we should see a 5-wave structure for the c-wave, we should be able to glean where within that target zone we can find a bottom to this 4th wave as the c-wave progresses.”
With the low struck in the futures relative to the 4352SPX region, I would say we have enough in place to consider the a-wave of wave 4 complete. That puts us squarely into the b-wave. And, to remind you, within the 4th wave structure, the b-wave itself is the most variable. Therefore, it is common to see the market chop traders to bits during this whipsaw type of environment.
I have provided a proposed standard path for how this b-wave can take shape on the attached 5-minute SPX chart. But, since b-waves are quite variable in nature, I may have to revise it as we progress.
The main take-away right now is that as long as we hold below the 4450SPX upper end of standard resistance for this rally, I think it is reasonable and highly probable we will drop down to at least the 4270SPX region in the coming week or so to complete wave 4. Of course, it can get much more complex than this, but for now, it is presenting rather straightforward.
And, to be honest, I have been racking my brain for an alternative which suggests that we head to 4600SPX from here, but I am really falling short of anything within the realm of reasonableness. Then again, when is the market “reasonable?” (smile). So, for now, as long as we remain below 4450SPX, I am looking down to at least 4270SPX.
Lastly, I want to again highlight the MACD on the 60-minute chart. While we are now approaching the top of the bottoming zone for this indicator, I would much prefer to see us drop to the bottom of this region during the c-wave of wave 4. This would reset the indicator to the point that can propel us in the next rally phase I expect to take us to the 4900SPX region as we look towards the end of this year and into early next.