Will The Market See A Bigger Bounce?

To reiterate what I stated early this morning, I will be looking at the short side to this market in two stages.

If you are bearishly inclined at this time, you may remember how the June drop did not provide much in the way of corrective retraces, as everything was quite shallow.  Assuming that a multi-year ED has in fact completed, then we "usually" do not see deep retracements back up.  This leaves me looking at the market in a bifurcated manner, and I will trade it in stages.

First, let's assume that we are only setting up a i-ii in red (formerly yellow) in a MUCH bigger c-wave down. This means that the current rally, which has now hit the lower region of our blue box presents a shorting opportunity.  If you wanted to get aggressive you would attempt a short within this region.  And, your stops would likely be set just over that target box.  If the market does not lose its lunch shortly thereafter, in confirmation of a 3rd wave down, you would simply be dropping your stops down as the market retraces to the downside after a move into the box.

But, as I said yesterday, as long as we remain below 1755ES, this can easily just be a 4th wave of this c-wave or wave 1 down, with a 5th wave to come targeting the 1727ES region with the potential to drop to as low as 1707ES. So, we need to exceed 1755ES to have it more strongly viewed as a wave ii.

Assuming that the first trade does not trigger to the downside, and the market moves beyond the 1768ES region with strength, then you would be looking for the bigger wave 2 much higher.  I have a harder time seeing this potential at this time, as it seems many are expecting a retest of the 50dma before bigger downside is seen.  But, clearly, I have to view the potential of this option, especially with a break out over the target box.  So, a wave 2 retracement region nearing the higher yellow box would be my second attempt at a short trade and I will need to see how the market develops over the next week to better focus in on a level to target near that resistance region.

Now, lastly, I know Garrett, Zac and Xenia are looking at the potential that this is a 4th wave bottom which we have struck, with another rally to be seen to the 1900 region.  As I have said, wrong or right, I am personally more focused on the downside in the two scenarios above before I can consider a move to the 1900 region.  So, while I may miss the first 50 or 60 points of that move up, if it is proven that we are going that high, we should still have an opportunity to buy into a 4th wave in the 3rd wave on the way to 1900 . . . which should still give us at least 75 points of that trade towards 1900.

So, in summation, due to the dangerous downside set up in this region, I am going to focus on the downside potential before I am going to give the upside any benefit of the doubt.

 Elliott Wave Chart