Wave V of 3 Should Be Next

The market wasted no time this morning telling us that this is a c-wave of a bigger wave iv.  And, while this has certainly provided us with a detour, I am still expecting wave v to rally us to 4330+, with an ideal target just north of 4400SPX.

In the smaller degree, we seem to have potentially completed a 5-wave c-wave down in wave iv right into our 4095-4120SPX support region.   But, I am not yet certain that we have completed that c-wave.

While I can count the minimum number of waves to the downside in the futures to suggest that a 5-wave decline has completed, the SPX does leave a bit of a question as to that potential.  Moreover, the rally off the low today was not an ideal structure, as it certainly did not provide us with a clear 5-wave Fibonacci Pinball structure.   Rather, the best we can make of it from an immediate bullish perspective is as a leading diagonal.

So, to keep this simple, we will need to break out back over 4170SPX to provide more assurance that the market has indeed bottomed in wave iv.   Moreover, I would like to see us complete a bigger Fibonacci Pinball 5-wave structure back up to the prior market highs to complete wave [1] of wave v of 3.  In fact, if we did see such a rally for wave [1] of v of 3, it would project all of wave v north of 4400SPX, which is still my ideal target for wave 3 of [3] on our larger degree structure.

So, while there is still some potential for a lower low in a 5th wave of this [c] wave of iv of 3, we will need to break back out through 4170SPX to make that unlikely.  

Moreover, as I noted in my 2nd update yesterday, this can now provide better alignment between the SPX and IWM, wherein the IWM seems to have completed its 4th wave triangle with today’s drop.   Of course, it can still get another lower low into the 211-213 region, but we seem to be quite close to when the IWM will finally join the rest of the market in a rally phase.

I want to add another point, which I posted earlier today:

“I am not sure if I have to say this, but I am going to anyway.  If we are indeed bottoming here, the rally of this low in IWM can be fast and furious.  So, PLEASE do not feel the need for FOMO as we will likely see a deep wave ii in the coming weeks, which coincides with a potential wave 4 in SPX.  So, if you are looking for longer term options strategies for wave 5 of (3), please keep this in mind.”

Remember, just because wave 4 may have completed in the IWM, it does not mean that we are about to embark on a multi-month rally just yet.  We still need the i-ii to develop before we are ready for a multi-month 3rd wave rally.

Now, since I do need an alternative count I am forced to bring back the old yellow alternative, as presented on the 60-minute SPX chart.   I will note that I really do not like it as I am not seeing anything in alignment for such a deep pullback at this time, but if we see a sustained break of 4095SPX I am again going to have to take it more seriously.  For now, this is a low probability based upon where we stand today.

So, in summary, we are now hovering over the 4095-4120SPX support region for wave iv of 3 in the SPX.  As long as we hold this region, I am looking for a rally back up towards the prior highs to complete wave [1] of wave v of 3.  And, again, should we see that take shape, it will likely project us over the 4400SPX region right into the ideal target zone for wave 3 of [3] of the larger degree.

Avi Gilburt is founder of ElliottWaveTrader.net.