Are We Done With Our Pullback?

As I noted last night, and again this morning, as long as the SPX remains below the 2575SPX resistance, the set up remains in place for wave iv to take hold.  And, take hold it did. 

Standard expectations in a 4th wave suggest that the (a) wave of a 4th wave targets the .236 retracement of the prior 3rd wave, which is exactly where we bottomed in the SPX today.  Moreover, as we were bottoming, I sent out a note suggesting that members be aware that we have a bottoming setting up.  As I also noted today, the .236 retracement coincided with the middle Bollinger Band on the daily chart, and provided further support for today’s decline to rally off that region.  And, thus far, that is what we have seen.

Again, moving back to our standard expectations, once we bottom in the (a) wave in a 4th wave at the .236 retracement, we usually see a (b) wave “choppy” rally back up towards resistance, as noted on our 5-minute chart.  As long as this resistance is maintained, it usually sets up the next decline phase in a (c) wave down to the .382 retracement of the 3rd wave, which is in the 2520SPX region.

Now, in very bullish markets, a 4th wave may not break below the .236 retracement.  In our case, I have noted that potential in yellow.  But, in order to see that as the greater potential, the SPX has to move directly up towards the 2565SPX region in 5 waves off today’s low, and that would suggest wave iv may have ended in a relatively shallow pullback at the top of our support box.

Should we see the more bullish direct move to the 2565SPX region, then we will be looking for a wave (ii) pullback, with the next break out over the top of wave (i) pointing us up to the 2611SPX region, which is presented by the yellow arrow after a wave (ii) pullback.  But, again, as it stands when I am writing this, it is not my primary expectation unless we see a direct move to the 2565SPX region.

For now, I am going to be looking for a pullback/consolidation for the b-wave, as I have noted on the 5 minute chart.  This will likely set up the next rally to the resistance box to complete the (b) wave of wave iv.  And, unless we see a full 5 waves up to the 2565SPX region, I will maintain this expectation that we are still in wave iv, which will not likely end until next week.

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