Are We Getting Euphoric?

Back in March, when the SPX broke below 2400SPX, I was explaining in our chat room that I was finally looking to buy back into the market.  And, at the time, I was taken to task by quite a few members who were telling me that it was an almost certainty that we would drop to at least 1800SPX and maybe even 1500SPX.   Well, we know how that ended.

Back in June, I was continually outlining that my preference was our former blue count, which should take us back to the all-time highs.  We are now 80 points over those prior all time highs – after a 1200+ point run within 5 months - and I am moving into a different camp.  While I have seen quite a number of you suggest that we are already on our way to 4000+, I have gone in the opposite direction and have raised cash.  In fact, in the most conservative account I manage, I have increased my cash position to 35% of the account value.  The others are now between 15-25%. 

But, as I have said many times, and I certainly hope you have heeded my warning, please do not try to front run a reversal by shorting, as this has been a very strong rally off the March lows.  Rather, we will need to have an initial signal of a top being in place.  And, as you have seen, I have raised our UPPER support level yesterday, and a break down below that support confirms that wave [ii] is in progress.

Moreover, I am also raising our micro support to 3420-3440SPX, as a corrective pullback in a micro wave iv – as shown on the attached 5-minute SPX chart – should hold that support before pushing higher again.

The main fly in the ointment for me has been the IWM.  This was the warning sign for us back in early 2020 as well.  You see, the IWM would still look best with one more push higher to complete its 5th wave off the March low.  However, it seems to be struggling quite a bit. But, until we break back below this past Friday’s low, I am still giving it the benefit of the doubt that it will “come from behind” and complete its 5th wave before a top is struck in the equity market.

Now, for those of you that are in fear of the market heading directly to 4000+, I have to tell you that I really do not have a reasonable pattern pointing to that at this time. Even if you consider the yellow count on my 60-minute chart, that wave [ii] was only a pullback of .236, which is almost never seen when dealing with a leading diagonal.  So, not only does it make that yellow count less likely, I do not even have a wave [2] of [iii] evident on the chart to suggest that we are already in wave [3] of [iii].  So, I think the likelihood of us already being on our way to 4000+ is quite low  - not impossible – but quite low, at least in my humble opinion.

Moreover, as I outlined before, a 5th wave can travel as far as the size of .618 waves [1]-[3], which is the 2600SPX region.  I still do not think we have the juice to even reach that level, but that is as high as a 5th wave can travel within this wave [i]. 

Overall, while my bigger expectation remains that we should see a wave [ii] down into the fall, I still have no indication that a top has yet been struck.  And, until the IWM either completes its 5th wave, or breaks down below last Friday’s low, we have no initial indications that a top has been struck, so PLEASE do not try to front run any potential reversal.

5minMicro
5minMicro
60minSPX
60minSPX
3minIWM
3minIWM
60minIWM
60minIWM
EEMWeekly
EEMWeekly
Avi Gilburt is founder of ElliottWaveTrader.net.