Another Downside Set Up

Although I cannot say it is the most ideal of set ups, we clearly have what can be counted as a 1-2 downside set up in the SPX as of my writing this update.  While the initial 5 down is not the cleanest of 5 wave moves, we have a strongly arguable one in place, followed by a 3-wave rally.  This can certainly provide us with a gap down tomorrow.

But, before you start leveraging yourself to the hilt for this set up, may I remind you we are still within a larger degree corrective, which does not suggest one trade aggressively within this structure.  I would be much more confident of this structure if we had waves i and ii in place for wave 3 down already, but we do not have that yet, as I write this update.  Should that play out, then it would be a strong short set up, with a stop at the high we make right now. 

The alternative would suggest that the market may provide us a higher b-wave, as represented in purple, which also follows through on the inverse heads and shoulders we see on the 5 minute chart.

Downside follow through, or lack thereof, overnight will likely tell the story.

Lastly, the recent action makes the yellow count even less likely than it was before, at least in my humble opinion.  The only way I can conceive of it playing out now is as an ending diagonal, and I refuse to view a diagonal as any high probability perspective without further evidence suggesting I should.

5minSPX
5minSPX
1turnchart
1turnchart
Avi Gilburt is founder of ElliottWaveTrader.net.