The Frustration From Both Sides Is Palpable

First, I want to thank Garrett for doing such an amazing job in guiding our members while I was out for a religious holiday the last two days.

As far as the markets are concerned, I must sound like a broken record already, but I still cannot get past the fact that the structure of the market since we topped in July has been corrective and overlapping in nature.  That means that for the last two and a half months, we have been playing ping pong within the same region as we bounce between 2820 and 3000. 

So, let’s put this market into appropriate context:  During the entire time since the high in July, we have made no progress whatsoever.  The only thing that has been accomplished is utter frustration to both sides of the market.

And, since this action has been quite overlapping and corrective, I still have no bullish patterns upon which I can reasonably rely to suggest that the market is about to begin its run to the 3800+ region. Moreover, the major underlying stocks are still not presenting us with a break out structure either.  Therefore, I am still of the opinion that we will need to revisit AT LEAST the 2820SPX region before I can even consider the potential of beginning that 5th wave to 3800+.

In addition to frustrating both sides of the market, this action has also scared away short traders.  And when that happens, it often leads to a market environment which creates a vacuum below the market.  You see, short positions are often what provide liquidity to the market, and short covering is what causes corrective bounces during a market decline.  When there are no longer any short traders in the market, then liquidity dries up, and the market can drop a lot further than we initially expect.

So, I am sorry if this may frustrate you further, but I still have no strong indications that a major rally has yet begun.  Rather, I am still of the opinion that we have to drop to at least the 2820SPX region, with potential that we can go a lot lower if the market pushes even more short traders out.

There is one final point that I would like to make.  For those of you that have followed my work over the longer term, you know that I am always running calculations and looking for ways in which I am wrong in my primary assessment.  In this case, I am actually struggling to find any real bullish alternative at this time. 

As I noted in my weekend update, the most “bullish” scenario I can come up with right now is the larger [b] wave in dark green.  Moreover, even that more “bullish” scenario resolves with another larger degree drop. In other words, no matter how much I try to contort my analysis, I am really not coming up with anything that provides me with a reasonable bullish alternative that suggests we are starting that rally to 3800+ at this time.  And, it is quite rare when I make such a statement.

So, as I also noted in my update over the weekend, the market is going to have to see a sustained break below the 2955/60 region to suggest we have topped.  Over the last two days, we have held that support and rallied higher.  The next time we break below it will likely suggest the next decline phase has begun.  In the meantime, we may still see another “squiggle” taking us to the 3011-14 next resistance target.

Lastly, I will be back at my desk tomorrow for the rest of the week, as the religious holiday that started on Sunday night has just ended.

60minSPX
60minSPX
Avi Gilburt is founder of ElliottWaveTrader.net.