Setting Up For A Rally To 2800SPX

In the coming week, the market will likely tell us if we have begun a rally to 2800+, or if we have one more lower low before that rally begins.

Last weekend, my summary conclusion noted:

“the commonality of patterns suggest that our “bottoming” target resides between the 2250-2335SPX region in the coming weeks.”

This past week, the cash index struck a low of 2346, while the futures struck a low of 2316ES.  Technically, this satisfies our target for the a-wave of wave 4.  However, from a structural perspective, I cannot confidently maintain that view.

As I highlighted during the past week, the bottom we struck this past week seems to best count as a 3^rd wave bottom in the (c) wave of the a-wave.  That still has me looking for a lower low yet to come.  Moreover, there were no divergences on any of the technicals present on the 60-minute chart when we struck that bottom.  The great majority of the time, that suggests that only the 3^rd wave of the (c) wave has completed.  For this reason, I was looking for this bounce to be a 4^th wave, which we began to anticipate when we identified the bottoming in the market in our chat room on Tuesday night. 

My ideal target for that 4^th wave bounce from the low 2300’s was 2470, with a maximum reasonable acceptable target in the 2520SPX region. And, as we now know, we have certainly struck my target for this rally off the lows we caught this past week.

Now, before I go into my analysis, I am going to remind everyone again that we are still in a larger degree 4^th wave, and 4^th waves are the most variable waves within the five-wave Elliott structure.  Therefore, they often come with many surprises which can reside outside of standard expectations.  For this reason we suggest investors avoid trading aggressively within 4^th waves, and to significantly reduce position sizing during these 4^th waves.  Remember, you should now be focused upon capital preservation until this 4^th waves nears its conclusion down in the 2100-2200 region.

That being said, the main question the market will have to answer in the coming week is if we will see a lower low before we begin the rally to 2800SPX in the b-wave shown on our charts.  Based upon the reasons I have outlined over the prior week, I have to maintain the primary count that this rally is a smaller degree 4^th wave within the (c) wave of the a-wave.  That leaves us looking for a lower low in the coming week or two.

But, in order to maintain a strong expectation for that lower low, the market will have to maintain below the 2520SPX resistance region, and begin an impulsive decline pointing us down to the 2250-2300SPX region next.  Should the market provide clues that it is not following through in this manner, then it will lend strong support to the a-wave having completed in an unorthodox fashion at the lows we have struck last week, and have us viewing the market as now being within the b-wave rally.

Most specifically, if the market continues to rally towards the 2560SPX region early in the coming week, or if the market begins to drop in a corrective fashion, then that provides strong support for the a-wave having completed, and pullbacks can now be bought with an expectation of a rally with a minimum target of the 2800SPX region.

This basically means that the next drop the market provides to us is likely going to be a buying opportunity.  Should it drop in impulsive fashion, then we can feel more comfortable in buying a lower low in the 2250-2300SPX region.  However, if the market drops in corrective fashion next, then we may not be able to drop below the 2350-2400SPX support region.  Unfortunately, at this time, I am going to have to wait to see the pattern in which the next market drop takes shape to be able to make this determination.

But, at the end of the day, I believe we have either begun or are very close to beginning the b-wave rally back up towards the 2800SPX region, which would be my minimum target at this time.  And, as the rally takes shape, we may even have to raise that target based upon the structure we develop in the coming months.  This will be the rally that sets the market up for that final decline in 2019 pointing us down towards the 2100-2200 region to complete this wave 4, which will then turn us higher in wave 5 which has a minimum target in the 3200SPX region likely to be struck within the coming years.