Charts on S&P 500 (INX): The Bulls Have One More Shot At 3225SPX

With the market not being able to hold the upper support region we noted last week, we got the pullback we expected when we broke below last Friday’s low:

“if we are unable to hold our current support, then I will likely have to view this as a wave (1) of iii of (iii) top, which would suggest next week will be a retrace week rather than a break out week.”

With the market pulling back all week, we are now looking at another (1)(2) set up in the SPX.  And, as long as we hold over 2830SPX, this count will be pointing us to the 2975SPX within the next two weeks.  It will be at the 2975-3000 region that the market will have to determine whether this wave (5) of v of 3 off the 2009 lows will be able to attain its ideal target in the 3225SPX region, or if we will only be able to reach the low 3000 region (green wave count on the 60-minute chart) instead before the 20-30% correction we expect will begin.

However, I must warn you that if the market is unable to hold over 2830SPX, and we see a sustained follow through break down below 2800SPX, it can open the door to the potential we drop down to revisit the 2500SPX region in a larger degree wave (4), or, the potential that the market has even topped in all of wave 3 off the 2009 lows.  The manner in which we would drop down to the 2500 region would be instructive to that end.  But, the main point is that the 2830 region is important support to maintain a strong bullish near-term wave count.

So, in the coming week, the bulls need to keep the market over the 2830SPX region, and build an impulsive rally back up towards the highs.  We would then need to see a corrective pullback, and rally back up through the top of the initial rally to point us towards 2975SPX next.

Lastly, I am going to conclude with my warning, yet again.  As we continue moving higher, I want to remind you that we are setting up for a 20-30% correction, which can potentially take the SPX back down to the 2100SPX region within the next year or two (with a minimum expectation of the 2400-2500 region).  So, please keep in mind that risks continue to rise the closer we get to our upside targets.  And, should further support break before we get there, it would make me even more cautious.

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Avi Gilburt is founder of ElliottWaveTrader.net.