Still Watching 804.30

The cash S&P500 made a slightly higher high on Thursday before ending down. This keeps us all guessing as to whether we will exceed the 804.30 level.

At this point the market has respected the Fibonacci cluster adjacent to the wave i’ low (804.3) and the downtrend line drawn from the start of the proposed Elliott pattern across the ending point of wave ii’.

However, price action still remains within the recent upward regression channel shown in today’s chart. If weakness continues we will want to start seeing signs that the wave up from March 6 is complete. Breaking out of the channel is one such sign. A move below 749.93 would be proof (that is the current PRP trend change marker).

Any break of 804.30 and the alternate wave count discussed Wednesday becomes the new roadmap. Elliott is the roadmap used to map how we get from one point to another. The destination right now (next Level 5 PRP) is a new low (below 666) before a potentially large multi-month rally can unfold in equities.

At this point I am in a waiting mode. With a bearish bias I wouldn’t even think about the short side until 749.93 is broken.

Roadmap Dead End?

Further rally in the cash S&P500 on Wednesday has pushed the wave iv’ scenario as far as it can go. We can’t exceed 804.30 under this scenario, which is just under the next Fibonacci cluster (805-809). Any break of 804.30 and the alternate wave count discussed yesterday becomes the new roadmap. Elliott is the roadmap used to map how we get from one point to another. The destination right now (next Level 5 PRP) is one more new low (below 666) before a potentially large multi-month rally can unfold in equities.

Note that the high on 3/16 and low on 3/17 have now been marked as Level 1 Price Reaction Points. The Elliott Wave from the 3/6 low can not be deemed complete until either the Level 1 PRPs show a trend change or a CIT is reached.

Stronger Than Expected Rally

Without further follow through to the downside yesterday I must question the underlying premises of my technical view. That view is that the market requires one more new low (below 666) before a potentially large multi-month rally can unfold in equities. To get that new low the roadmap being followed was that the current upward correction is an Elliott Wave iv’ which would be followed by wave v’ down to below 666.

It is crucial to my methodology that the current rally not exceeds the January 28 high of 877.86. If it did the overall view that a new low is required would be called into question. The roadmap that we are currently in a wave iv’ counter-trend rally would be blown out of the water if the January 21 low of 804.30 is broken. There is one scenario that would keep the overall view in tact but would require a change to the roadmap (Elliott count) on how we get there.

If wave iv’ overlaps wave i’ at 804.30 but doesn’t exceed 877.86, I would have to believe that the swings from the January 6 high are not waves i’-ii’-iii’ of an impulse but rather waves a’-b’-c’ of a complete Zigzag pattern.

I’ll explore that idea further if a break of 804.30 occurs or is imminent.

A Price Target is Hit

Counting from the lowest closing low on March 9 the cash S&P500 moved upward for five Fibonacci trading days before reversing intraday yesterday at a price confluence area. A previously identified Fibonacci cluster sat from 772-773 but we edged up to just over 774.

Added to the chart today are more “resistance” levels. In dark purple are two thick horizontal lines denoting the bottom of the market in 2002-2003 based on the notion that previous support might now be resistance. The three horizontal lines labeled 45, 90, and 120 are Gann targets from the recent low. Such targets become particularly interesting when they coincide with Fibonacci clusters. Price also touched the top of the regression channel line (blue downward sloping to the right lines) from the January 6 high.

So there were plenty of reasons to reverse yesterday. We should now see a bit more follow through to the downside and the 774.53 high become a PRP if not also a fractal.

Quick Weekly Comment

If the Elliott Wave count developed on the daily chart has any validity then there must be a reflection of it on the weekly (and subsequently higher time frames) chart (s).

Shown today is the weekly cash S&P500. Note the CIT at the January high and the price fractal at the wave i’ low on January 23. If wave iii’ is complete (as I believe) we must see a price fractal develop at 666.79. This will occur over the upcoming week if price stays above that level.

The main Elliott story this week is likely to be the pullback and retracement of the recent 91.5 (close to a Fibonacci 89) point rally.