Yellow Wave [2] Took A Big Leap Forward

With today’s weakness, there is very little for me to rely upon for an immediate bullish resolution.   In fact, the only structure left for a possible wave i is a leading diagonal, and I do not view those as highly reliable.

Even within the leading diagonal potential, I have to also note that the pullback into what we would call wave [iv] “looks” too big relative to the rest of the structure to be highly probable.  Yet, I am still maintaining the count due to the fact that this is a bull market, and surprises come to the upside.  But, I want to be clear that I am personally protecting my own positions due to the increased probability for the yellow count in wave [2].

Even within the yellow count, I don’t see it as highly probable that we simply break down from here.   There is no clear structure pointing to this having begun the c-wave down at this time.  Of course, the market can do as it wishes, but as long as we remain over 3775SPX, I think a b-wave in the yellow count can also take us back towards the highs (and even make a marginally higher high), before we drop in the c-wave of wave [2].  Since I have no clear indication that this pullback has yet completed, I am unable to come up with an [a]=[c] target within the b-wave just yet.  But, if today’s morning low holds, the [a]=[c] projects to a marginally higher high.  So, clearly, it will make trading the next week or two quite precarious.

Should we rally back to the highs, I will be trading the yellow count, and likely adding to my protective positions up there.  In the event I am wrong, the market will only pullback in a wave ii corrective pullback, and then rally back up over that level, at which time I can stop out of my protective positions. 

So, for now, I am not at all confident that we have begun wave 3, especially as the probabilities have now risen that wave [2] has not yet completed.  And, based upon the high for wave [1] in yellow, our target for [2] would be the 3500-3675SPX region, as shown on the 60-minute chart.  My expectation is that we should hold the upper region of that pullback, but we will not know more until we see how the c-wave down develops.  

So, overall, I think the lack of upside follow through in a bullish structure for wave i of 3 has increased the probabilities for us to still be in wave [2].  For those that are likely asking yourselves is this is still just wave 2, I would say that we have become a bit too large and incomplete to view this as a wave 2.  While that is still possible, I do not think it to be a higher probability at this time.   Overall, I maintain a larger degree bullish perspective, yet recognize the potential for a larger pullback in wave [2] has increased with today’s action.

In the meantime, as the micro structure continues to develop, I will be posting updates during the day to track it.

Avi Gilburt is founder of