Charts on SPX & IWM for Article, "Has Our Summertime Pullback Begun?"

In short, the answer seems to be yes.  However, we will need a break of support residing a bit lower to confirm that perspective.

For the last few weeks we have been waiting for the market to begin the pullback we expected for the summer.  And, Friday may have kicked off that pullback.

However, what still leaves me a bit troubled is that the IWM did not attain its full target.  Rather, if it has already topped, then we have a truncated 5th wave, which is not terribly common in bull markets.  Rather, corrections are what often see truncated patterns, not rallies. 

Yet, Friday’s action has me now viewing the market as likely having begun the pullback we have wanted to see.  Moreover, if the pullback has indeed begun its pullback, it would likely mean that the IWM is in a wave (ii) pullback, whereas the SPX still seems to be stuck in the ending diagonal.  That would suggest this pullback is only a b-wave within wave (iii) in the SPX, and support for such pattern resides between 2730-2770SPX.  It would take a break down below 2730SPX to suggest the deeper pullback in yellow wave (ii) was taking shape.  But, as I have noted before, the deeper pullback in yellow for the SPX seems the lesser likely path at this point in time based upon many of the stocks being tracked by our Stockwaves analysts.

If this pullback is truly in progress, we will need to see a sustained break down below 2789SPX and 162 in the IWM to confirm that scenario.  Moreover, should the IWM break such support, and SPX be unable to break below 2730SPX, it would suggest that the IWM could have greater upside potential, from a percentage standpoint, due to it being in a standard impulsive pattern with higher percentage targets relative to the ending diagonal scenario seemingly playing out in the SPX.

Moreover, as we have discussed many times before, if the SPX maintains its current track and is unable to break below 2730, it would not likely see too much higher over 3000, and may very well come short of its ideal target of 3225SPX.  Additionally, it may mean that the SPX may top as early as the end of 2018, or in the first quarter of 2019 and then begin its 20-30% correction.

In the coming week, we may not see the confirmation we seek of the break below 2789SPX and 162IWM.  Rather, even if we have begun that pullback, I think we will likely see a rally before those levels are broken.  And, assuming that rally is corrective in nature, then it will likely be a (b) wave rally, setting up for the break down below those support levels over the next few weeks.

Ultimately, I still see the greater likelihood that the equity market will go on to make higher highs as we head into the fall.  And, I still think we are at least 5-6 months away before we begin a 20-30% correction.  So, it would seem that the larger degree correction is still scheduled for 2019, and as the pattern fills out in the coming weeks, we will have a better idea of when and from how high this larger degree correction will take hold.

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