The bears broke us below 2600SPX today, yet it does not look like they could seal the deal. Rather, we have what counts as a potential 5 wave structure off that lower low, which aligns with the IWM for a potential expanded (b) wave. And, without the IWM seeing a sustained break of 142, amazingly, this still leaves us with yet another whipsaw scenario on the table.
Coming into this week, I was looking for a sustained break of 2600 to take us down to the 2450-80 region to complete the (c) wave of the a-wave of wave 4 sooner rather than later. However, as I noted in updates last week as well as today, the IWM has me quite concerned about another potential whipsaw taking us for another rally for the next week or two in a larger and expanded (b) wave structure. And, yes, this would likely provide everyone with the Santa rally that is always expected.
I do not want to make this seem like this rally is a slam dunk though. Expanded b-waves are not terribly common, but they do happen. Moreover, it is also quite possible this (c) wave of the a-wave morphs into an ending diagonal, which will mirror the action seen in the last half of October, and that was not easy action to navigate. But, I have to note that the one in the IWM is an almost text book structure.
The IWM has now dropped in an almost perfect (a)=(c) for the b-wave within its (b) wave, and then the market developed what looks to be 5 waves up off that low, as of my writing this update. We will need to see a corrective pullback in the SPX from below the 2645SPX region for a 1-2 set up to suggest that we could begin a c-wave rally into next week.
I have added resistance to the IWM chart, which if exceeded will point it up towards the 155 region. If we cannot exceed that resistance, it points the IWM down to the 130-133 region to complete this a-wave off the all-time highs.
As I have said so many times, 4th waves chew traders up and spit them out. They provide what would normally seem like good set ups, and then rip them to shreds. For this reason, I have warned that capital preservation should be your primary focus, rather than trying to trade aggressively through this mess. Moreover, remember that the goal of the 4th wave is to separate you from the profits you made during the 3rd wave rally.
Should the bears be unable to follow through on this break down below 2600SPX this week, it would certainly point to yet another instance of typical 4th wave action. And, this is the reason I suggest that most of you should not be trading this region, at least until we are able to complete the a-wave.
If the SPX/ES provide us with a 1-2 structure into tonight or tomorrow, this can point us back up towards the 2800 region yet again. But, I will add that a 5 wave structured rally from here would likely present us with a higher probability short trade in the coming weeks. Trade carefully please.
Lastly, I want to remind you that once this a-wave completes, I will be looking for a multi-month b-wave rally to take us back up over 2800, and it can even take us up to the 3011 region. Remember, when the primary trend comes short of an ideal target, it is not unusual to see the b-wave of the corrective structure to come back to strike that open target. But, I wont know how high we will likely trade in that b-wave until we are at least a month into that structure. But, since it will likely take us well into 2019, I think we will have plenty of time to make those decisions.
Try to maintain perspectives on the forest rather than just the leaves.