We Are In Our Target Box

When we were down in the 2430SPX region and looking for a rally to take us to the 2465-2475SPX region, we were looking for a standard 5-wave structure to give us a high probability topping point for a b-wave.  Yet, that is not exactly what we have gotten since we began this rally on Tuesday.  And, that is what led me to post that warning in my analysis last night about the potential to even head higher than our target.  It was all based upon the structure within the rally up this week.

You see, unlike most analysis methodologies, Elliott Wave does provide for early warnings of potential pattern breaks.  Moreover, if applied appropriately, it gives you excellent early guidelines as to what you may expect minutes, days, months, and even years into the future.

The rally up has a different structure in the futures than it does in the cash SPX index, which does cause me a bit of concern about identifying the specific top in this region.  Moreover, when it goes straight up in the manner it has, it does not provide subdivisions which give us our strong guidance as to where we are in the wave structure.  For this reason, I have been tracking several potential wave counts within this structure.  But, what they all have in common is that they need a break down below 2460SPX, with follow through below 2454SPX to suggest that the b-wave has topped, and we are heading down to test the 2380-2400SPX support region.  So, for now, as long as the market maintains over 2460SPX, it still can subdivide higher, but a break of that level, with follow through below 2454SPX opens the door to our c-wave down.

Now, as I have said many, many times over, we must always remember that this is a bull market.  For that reason, we have to keep in mind that the market is still likely heading to 2600SPX, and possibly even higher.  So, even though most people love to short the market because one can make a lot of money in a short period of time, I do not suggest most people engage in shorting during a bull market.  Well, the other

In fact, I have had people argue with me in my trading room over the last two years about how they “know” the market is going to come crashing down, even though I had been showing the path to 2500-2600 for years.  And, many of them have even been shorting this market during the last 400-700 point rally we have seen since the February 2016 lows.

But, I want to warn again about aggressive shorting during a bull market, as it is not advisable.  And, for those who still want to short the market, my humble suggestion is to wait until the market has confirmed the top to the b-wave with a 5-wave structure breaking below 2454SPX.   That would be a wave 1 down in the c-wave we are looking for to take us to our test of lower support.  After that initial 5 waves down completes, we would see a corrective rally back up for a wave 2.  Again, for those who want to short the market, that would be the best set up to attempt that short trade to our lower target region.  This short set up gives you a lower risk short trade attempt, with a stop being placed at the high of the b-wave.

Over the last month, I have noted that this rally even has some potential of moving back towards the all-time highs.  While I viewed it as a lower probability a week or two ago, the structure within this rally has made it a bit higher of a probability to me, which I would now ballpark between the 30-35% region.  So, until the market is able to break support, I would be quite cautious about any aggressive short side bets. 

Avi Gilburt is founder of ElliottWaveTrader.net.