I May Be A Stubborn SOB

I know everyone is expecting downside in the market because we have gone much further to the upside than anyone expected - well . . . other than us. (smile)   But, simply because the market CAN pullback does not necessarily mean it will just yet.

I have been harping all week about how important the 3115SPX support is to my work.  You see, within a bullish structure, the wave [iii] of 3 takes us to the 1.00-1.236 extension of waves 1 and 2, and wave [iv] of 3 pulls back to the .618-764 extension.  In our case, since the market topped out in what may be wave [iii] of 3 at the 1.00 extension this week, today we came back down to the .618 extension in what counts well as an a-b-c corrective structure for a potential wave [iv] of 3.

This is simply how our Fibonacci Pinball structure places a more objective framework around the standard Elliott Wave structure.  Moreover, if the .618 extension holds as support it points us up towards the 1.382-1.618 extension of waves 1 and 2, which is the 3260-3304SPX region, with the 3304SPX region being my preferred target at this time.

However, if we see a sustained break of the .618 extension, then the market is providing us early warning that the rally to the 1.00 extension was a corrective b-wave rally, and we are turning back down to strike a lower low relative to the a-wave from which this rally began.  So, this is why I have a minimum target of the 2900SPX region if we see a sustained break of the .618 extension.

But, this is where I have to remain stubbornly to my method.  Until we actually see that sustained break of the .618 extension, the market retains potential to rally much higher in the coming weeks.  So, for this reason, I am waiting for the market to tell me clearly that higher levels are not in store over the coming weeks, and, instead, we have begun the decline in a [c] wave in green.  And, today, the market held 3115SPX.

The other factor that prevents me from becoming bearish prematurely is that the decline off the 1.00 extension we struck this week has been quite overlapping and corrective looking.  This supports the potential for this being a wave [iv] pullback, especially for as long as we remain over 3115SPX support.  Remember, a [c] wave decline would be an impulsive 5-wave structure.  And, thus far, I have no clear indications that an impulsive decline is taking shape.  Of course, should we break below 3115SPX, then we may be tracing out wave 1 of [c] as a leading diagonal.  But, until that actually happens, I have nothing that strongly suggests that it will happen.

So, as the market continues to taunt the bulls and bears alike, we have come to the end of the line for the near-term bulls.  Either they defend 3115SPX, as they did today, or we can begin our decline in the [c] wave in green.

Of course, the fact that the IWM broke below its ideal support today is a warning shot to the bullish side of the market.  But, unfortunately, that break was only a spike and immediate reversal, which is seen in IWM all too often and makes it much more wild to trade. But, this clearly is a warning to the bullish side of the market.

At the end of the day, if the market is going to break down and begin the [c] wave decline in green, then I would expect we will see a break down below 3115SPX by tomorrow.  Otherwise, the bulls will remain in control over the coming weeks as they attempt to trace out the wave [5] in blue back towards the all-time high in the 3400SPX region.

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Avi Gilburt is founder of ElliottWaveTrader.net.