The Meaning Of Five Waves

As of this morning’s gap up again, we now have a minimal structure to consider the market has rallied 5-waves up off last week’s low, and clearly earlier than I had expected this strength.  So, what does this 5-wave rally represent?

As we know, if all of wave [ii] is already completed at the .236 shallow retracement, then this 5 wave rally is either all of wave [1] of [iii], or may even be only the wave i of wave [1] of [iii], which is hinted to in the dark green count on the 60-minute chart.  (In the dark green count, it would mean that a 5-wave rally to the 4000 region will be wave [1] of [iii], which would likely make wave [3] of [iii] point us to the 5000 region which would be the 1.236 extension of waves [i] and [ii]).  I will discuss this in greater detail in the weekend update. 

But, our alternative perspective is that this 5-wave rally is a [c] wave in a bigger b-wave within wave [ii], as shown in yellow.  And, when we are in a bull market, I have to give the edge to the bulls when I determine which is the primary count – even though I would really prefer to see a reasonable wave [ii] retracement.

So, how do we make a determination as to which is truly the highest probability?  Well, once this rally tops out, and we break back below the micro wave 4 of this wave [1] (as outlined on the 5-minute SPX chart), we will see how the retracement takes shape.  If we are CLEARLY corrective in nature, then it solidifies an expectation to begin the heart of wave [iii] sooner than I had initially expected.  However, if the next decline is CLEARLY impulsive, and we break below the wave [2] support box on the 5-minute SPX chart, then it again opens that door to the 3050-3150SPX region for a more appropriate wave [ii].

In the meantime, as long as we hold 3497SPX, then the market has potential to extend within this 5th wave of wave [1].  Below that level is the initial signal that wave [1] has potentially topped.

As I said yesterday, the battle lines are drawn.  Yet, it is only a matter of time before we will break out in a major bull market move as we head into 2021.  And, I think the next two weeks will set our pattern for all of 2021.   

Avi Gilburt is founder of