We Didn't Hold

Although the cash S&P500 exceeded the June 12 low by only 0.79; and then rallied to close higher, it means our analysis has stepped off track and a revision is called for. It is now clear that the larger wave iii or c has not ended.

In the short-term we need to see whether the reversal yesterday will stick. As the attached revised wave count shows we now need proof that the fifth wave (blue v’) down from the May 29 high has ended.

As for me, although I still think we are in the process of making a short-term low, I will wait for today to play out and have a look at the weekly chart this weekend before I get bullish here. Failure to hold yesterday means that risk still remains to the downside.

At a Decision Point

After yesterday’s hard “downtrending” day the cash S&P500 is at the “do or die” position with reference to the primary wave count. Per our preferred scenario the index should now commence a rally which should exceed 1366.59 but fail to go above 1406.32.

Any move below 1331.29 would result in a revised wave count. Let’s see how it plays out.

Will the Pullback Hold 1331?

Notice how early in the day price action was clearly out of the price channel (purple) associated with the price pattern from the May 29 high to June 12 low. This increases our confidence in the associated wave count.

After reaching for the short (red) moving average the cash S&P500 reversed and closed lower on an “outside” day. This price action is indicative of a small pattern ending; in this case an impulse from the June 12 low of 1331.29. As this was a five wave move up (it must be a Leading Diagonal since waves one and four overlap) we can expect at least one more rally after the current pullback.

Best support on that pullback lies at 1343-45 today and then at 1335-37. Break those levels and all that is left is a retest of the low at 1331-33. A move below 1331.29 means that the alternate Elliott count (impulse scenario from May 19) must be preferred.

Can We Make it Out of the Purple Channel?

After finding support near the identified 1351 level the cash S&P500 made it to the long (green) moving average. The session was “uptrending” and it is (possible!) that a small, upwards five-wave Leading Diagonal pattern has completed from the 1331.29 low. More likely however is that yesterday’s bar was a small fourth wave and one last push today will complete an impulse from the 1331.29 low.

Our working hypothesis remains unchanged - that a five wave impulse pattern has completed from the June 5 high. In turn, this means that we are now in a larger degree fourth wave (iv) [scenario 1] or that a complete zigzag pattern has completed from the May 19 high [scenario 2].

Today’s support: 1356-57 and then 1345. A move below last Thursday’s low means that scenario 1 (impulse scenario from May 19) is preferred.

Today’s resistance: Expect resistance again at the long (green) moving average. If this is broken the next level is at 1368-73 and then 1384-91.

Watching for a Bounce Up Out of the Channels

There was an “uptrending” day formed on the cash S&P500 chart last Friday. Our working hypothesis is that a five wave impulse pattern has completed from the June 5 high. In turn, this means that we are now in a larger degree fourth wave (iv) [scenario 1] or that a complete zigzag pattern has completed from the May 19 high [scenario 2].

I favor scenario 2. Why? Market technicals. I have shown in previous posts how the bottom last Thursday was at price targets and DeMark oscillator lows. Now the daily chart has also flashed a “buy” signal between the RSI and Composite Index. Therefore, even though the fourth wave scenario can not be ruled out I favor the completed zigzag scenario.

In the bigger picture I view the May 19 top as the end of an “A” wave (from the January low) which implies we are now in a larger “B” wave. The just discussed zigzag is part of this larger “B” and must now be followed by another corrective pattern or an “x” wave. I prefer the “x” wave option since my price/time work shows that 1406.32 should not be broken over the near term. At a minimum, I would expect the top of the orange channel line to be broken by this “x” wave.

For Monday, expect resistance first at the long (green) moving average. If this is broken the next level is at 1369-73 and then 1382-86. Support is at 1351. A move below Thursday’s low means that scenario 1 (impulse scenario from May 19) is preferred.