Detailed Micro-Count Update

In  my haste to get out the update, I had 2890/2990/2980 confused in a few places.  This should have it corrected:  My apologies:

As we have been tracking how this market is going to subdivide to take us to the ideal target of 3225 (which we have had for quite some time), there have been several set ups that could have taken us there. 

More importantly, we have been going through this analysis as to how we can reach 3225 while still being cognizant that we may end up short of our ideal target, and only strike a target in the 3011 region within the ending diagonal we have been tracking in green on the 60-minute chart.  Both counts have been quite viable for months, with the market still hiding its true intention as to how high it wants to take us before we complete wave 3 off the 2009 lows, and begin a 30% correction.

So, I am going to take this discussion back a few degrees, and begin with the alignment I am seeing from blue waves i and ii, which took us through July and half of August.  Once completed, we then saw a rally to the .764 extension of wave i and ii.  While this is a very high target for wave (1) of iii, it can be seen within a very bullish structure.  Since then, we retraced almost 50% of that rally in wave (2), and currently find ourselves striking the .618 extension of waves (1) and (2) today.  That is a typical target for wave 1 of (3), and, for now, that is how I am counting the structure.  That means the market will have to provide us a wave 2 pullback in the coming days if this is the correct count.  Moreover, I suspect we will not likely break below 2890SPX in that pullback.

You see, not only do the higher degrees match up with appropriate (and even very bullish) Fib Pinball targets, the smaller degree structures moving forward seem to be aligning as well.  But, it still calls for just one more pullback in wave 2 of (3). 

The problem with which we have been dealing over the last few weeks is that this wave 1 of (3) seems to have taken shape as a leading diagonal.  While there are other ways which we can count the action we have seen over the last few weeks, the leading diagonal is really the most likely which fits in within the larger degree structure pointing to 3225SPX, at least based upon Fib Pinball at several degrees of structure.  And, yes, this is coming from someone who does not like leading diagonals as a general rule. 

The issue comes in if we break out past this resistance in the .618 extension region (2935SPX) without seeing a wave 2 pullback, as I then have no clear 1-2 structure that will point us higher towards the targets we should be hitting in wave (3), unless of course the market provides extensions within wave 3 of (3) of 2.382-2.618 rather than the normal standards we follow. 

Therefore, when following the standards we usually follow, a direct break out through 2935SPX will either prove to me that we are going to 3225SPX by providing very strong extensions taking us directly to AT LEAST 2980SPX, or, we will have to seriously revisit the ending diagonal scenario presented by the green count.  I would much prefer the more straight forward pattern of a wave 2 pullback towards 2890SPX.

In the larger degree perspective, I also want to note that I am raising bullish support from 2830SPX to 2865SPX.  With wave 1 climbing as high as we have, wave 2 can now drop as deep as 2865 (15 points lower than the expectation I had previously for the support on a wave 2) and still strike the 2980SPX region for wave 3.  So, support can now be moved up to 2865SPX, but my expectation is that we may not break below 2890SPX for wave 2, should we get that pullback.

In the event that we do get the direct break out from here instead of a wave 2 pullback, support can then be moved up to the .618 extension on the 60-minute chart (2897) once we strike the 2956SPX level.  Should we strike 2856SPX, and then break back below 2897SPX, then it places me squarely in the green ending diagonal count.  So, for now, we can move support up to 2865SPX, and when we strike 2956SPX, then move it up again to 2897SPX. 

To reiterate, my preference is still to see a pullback towards 2890SPX from here.  But, should we see a direct break out, then I will have to be much more cognizant of the ending diagonal scenario, unless the market simply melts up from here to strike 2.382 and 2.618 extensions in the next rally to point us to 2980SPX in quick fashion.  We will track the micro counts during such time to raise micro support and use them as clues for this very important region.

In summary, I am still tracking several potential patterns to take us to our ideal target of 3225.  However, the wave 2 pullback towards 2890SPX would be my preferred and most easy to track, with our new support being 2865SPX.  A direct break out will have me on alert for the potential ending diagonal scenario, and we will have to track the micro structure carefully to see if that is what the market intends. We will use the next rally to raise our support for the market as well, with the next raise taking us up to 2897 from 2865SPX.

At the end of the day, I will reiterate what I have been saying for weeks now.  As we continue in our rally to 3000+, the risks are certainly rising, especially if the market is going to take the green path for the ending diagonal to complete wave 3 off the 2009 lows.  So, the higher we go, the more you need to take your risk management seriously.

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Avi Gilburt is founder of ElliottWaveTrader.net.