Yup, That May Be It

Yesterday, I was questioning whether that was going to be all of the wave [2] pullback we see in the SPX.  And, today I think the market made its decision.

With the rally today, the market is suggesting that we are starting the run for wave 1 of [3].  Based upon the structure of waves [1] and [2], and assuming that wave [2] is indeed in place, I have now added the extensions for wave [3] on the 60-minute chart, which includes waves 1-5 of wave [3].  

Going back to our Fibonacci Pinball structure, wave 1 of [3] usually targets the .382-.618 extension of waves [1] and [2]. That would be the 3855-3973SPX region.   Based upon the current micro structure in the ES/SPX, I am not yet sure if we are going directly to the 3855 region to complete wave 1 in a more direct fashion.  You see, the structure off the recent pullback low may be a nestled series of 1’s and 2’s, as shown by the alt count on the 5-minute ES chart. And, if we can break out strongly through the 3780ES region in a direct fashion, then it would suggest this is the operative count for wave 1 and likely point us towards the 3855SPX region sooner rather than later.  

However, if we pullback here, as outlined by the i-ii structure in green, then it would project us to the higher target for wave 1 in the 3970SPX region.   

Now, to be honest, if this is the green wave i count presented on the ES chart, then it would be counted as a leading diagonal.  But, when a leading diagonal completes, we often see a very strong downside reaction.  We have not seen that thus far.  All we have seen is a consolidation under the all time highs.  This means that the market may take the opportunity to run directly to the 3855SPX region in the more nestled count.

But, once we do complete wave 1 and get our wave 2 pullback thereafter, I am expecting a very strong break out move to the yellow target box on the 60-minute SPX chart between 4165-4300SPX region.  Remember, wave 3 of (3) targets the 1.00-1.236 extensions of waves [1] and [2], and that yellow box is our target (from a price standpoint, not a timing standpoint).  

As I have also been trying to highlight of late, the IWM has been running well ahead of the SPX of late.  In fact, the IWM is actually completing the wave 3 of [3] in this run, whereas the SPX is running behind.  For this reason, I think the SPX will likely catch up to the SPX in the coming weeks once its 1-2 triggers the wave 3 rally.  So, keep that in mind as you view the various charts.

Now, since I also need an alternative count, I am going to keep that pesky bigger wave [1] in place in yellow, representing a bigger ending diagonal to complete this wave [1].  With the current presentation of wave [2] as shown now, I no longer have the same reservations that I maintained before regarding the size of the wave [2].   While it is certainly shallow, it did last for two weeks and I would view this as the minimum expectation for a 2nd wave within the start of a 3rd wave rally. Of course, I will add a support region for wave 2 should we get to at least the 3855SPX region, but I would expect that to hold and set us up to begin wave 3 sooner rather than later.

Ultimately, keep in mind that many of the individua stocks have already begun the heart of their respective 3rd waves, and the IWM is well ahead of the SPX in its 3rd wave structure.  So, I think maintaining any expectation for further wave [2] may not be prudent at this juncture.  Rather, if the market does provide us that alternative path, I would simply view it as a gift from the market gods. (smile).

In the meantime, there are still a number of individual stocks that are set up like the SPX, which have not yet begun the heart of their 3rd waves just yet.  Our StockWaves analysts have been doing an amazing job at highlighting them.  So, please try to focus on the opportunities being presented to us in the market.  Once the SPX triggers its 3rd wave, many will be chasing these stocks much, much higher.

In the meantime, I am going to watch the micro structure to glean the appropriate 1-2 structure in the SPX to prepare for the wave 3 break out in the coming weeks. Once that triggers, there should be no more doubt about the wave structure.   Moreover, once it does trigger, and we have an appropriate [i][ii][1][2]1-2 structure in place, the rest of our job for 2021 and 2022 will be so much easier. 

5minES
5minES
60minSPX
60minSPX
5minRTY
5minRTY
60minIWM
60minIWM
Avi Gilburt is founder of ElliottWaveTrader.net.