Weekend analysis of the S&P 500 cash index expected Monday to begin with some upwards movement to a target at 1,519, and then for price to turn around and move lower. An increase in downwards momentum was expected although it did not necessarily have to arrive during Monday’s session.

Price did move higher to above our target, reaching up to 1,525.84, just above the next ratio at 1,523.74. Thereafter, price turned around and moved lower as expected. Momentum has begun to increase already.

The S&P is behaving exactly as expected so far. I still have two wave counts. They still expect the same movement next.

Click on the charts below to enlarge.

Main Wave Count.

Wave iv pink should exhibit choppy overlapping downwards movement for about a week.

Because wave ii pink was a shallow 36% correction of wave i pink then wave iv pink may end about 1,440 at 0.618 the length of wave iii pink, given the guideline of alternation. Now that price has breached the narrow channel containing wave C blue it looks like we may see alternation in depth as well as structure.

Wave ii pink was a zigzag so we may expect wave iv pink to be a flat, double or triangle. A flat is most likely.

The most common type of flat is an expanded flat which has a B wave that makes a new price extreme beyond the end of the A wave. A new high above 1,530.94 is possible if wave iv pink unfolds as a flat.

If wave iii pink is over it lasted a Fibonacci 55 days. Within it wave (i) green lasted 14 days, one more than a Fibonacci 13, wave (ii) green lasted a Fibonacci 8 days, wave (iii) green lasted 20 days, one less than a Fibonacci 21, wave (iv) green lasted a Fibonacci 3 days, and wave (v) green may have had no Fibonacci duration. So far wave iv pink has lasted four days.

This main wave count expects wave iv pink to last about a week or so. Thereafter, wave (v) pink may move price to a new high (although it does not have to) and may end again on the upper edge of the wider parallel channel containing the zigzag of wave (Z) black.

At 1,548 wave C blue would reach equality in length with wave A blue. When wave iv pink is complete I will recalculate this target at pink degree.

Wave iv pink may not move into wave i pink price territory. This wave count is invalidated with movement below 1,409.16.

If this main wave count is invalidated then the alternate below will be strongly confirmed.

Within wave iv pink if it is unfolding as a flat correction, as is most likely, then wave (a) green must subdivide into a three. Wave a green looks like it may be unfolding as a 5-3-5 zigzag. Within the zigzag wave c orange is incomplete.

At 1,471 wave c orange would reach 1.618 the length of wave a orange. This would complete wave (a) green.

Within wave c orange waves 1 and 2 purple are complete. Wave 3 purple is incomplete and it should end during tomorrow’s session. Wave 4 purple to follow may not move into wave 1 purple price territory. This wave count is invalidated with movement above 1,508.33 prior to the end of wave c orange.

When wave c orange is a complete five wave impulse then this wave count has no upper invalidation point. Wave (b) green may make a new high, and indeed is very likely to do so. At that stage this main wave count will diverge between the alternate below and we may have an indication which wave count is correct.

Alternate Wave Count.

It is possible that we have seen a big trend change at primary wave degree. The bearish engulfing candlestick reversal pattern indicates a trend change and price may have bounced off the upper edge of the wider parallel channel.

If primary wave B triple zigzag is complete then it is a 160% correction of primary wave A. This is longer than the common length, so it is a bit unusual, but it is not unrealistic. I have seen B waves within flats that are this long.

We should always assume the trend remains the same, until proven otherwise. We should assume that the main wave count is correct, the trend remains upwards, until price moves below 1,409.16 to invalidate the main wave count. At that stage this alternate would be my only wave count and I will calculate downwards targets for you.

Further downwards movement below the parallel channel about the zigzag for wave (Z) black would provide confidence in this wave count.

Because primary wave B is a triple zigzag, and the maximum number of structures in a multiple is three, once the third zigzag is confirmed as complete then the entire correction must be complete. At cycle degree I cannot see another explanation for primary wave B which would allow for further upwards movement.

The increase in downwards momentum during Monday’s session gives a little indication that this alternate may be correct. So far it has a slightly better look on the hourly chart.

Downwards momentum is exactly what we would expect to see for a third wave. This wave count has a really good look on the hourly chart.

At 1,474 wave 3 purple would reach 2.618 the length of wave 1 purple. About that point we should look out for a fourth wave correction. Wave 4 purple may not move into wave 1 purple price territory above 1,501.88.

At 1,468 wave iii orange would reach 2.618 the length of wave i orange. When wave iii orange is complete then wave iv orange should move price sideways and higher. It may not move into wave i orange price territory. This wave count is invalidated with movement above 1,508.33 at that stage.

I expect wave iii orange may end tomorrow. Wave iv orange may begin tomorrow and may or may not end tomorrow.

At 1,438 wave (iii) green would reach 2.618 the length of wave (i) green. When I know where waves iii and iv orange have ended then I will calculate this target at two wave degrees so it may change.

If wave (iii) green is long and exhibits continued strong downwards momentum then this alternate wave count will look more likely than the main wave count. However, it is only confirmed with price movement below 1,409.16. At that stage we may have confidence in it.

When wave (iii) green is complete then this alternate would expect a fourth wave correction which may not move into wave (i) green price territory. This is the stage where our wave counts diverge. This alternate would be invalidated with movement above 1,497.29 and the main wave count would require it and may see a new high.