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A clear breach of the small channel on the hourly chart indicates that the third wave has begun. The target remains the same.

Summary: The target for the next wave down is 1,822. This target should be met early to mid next week. I expect to see a strong increase in downwards momentum by Thursday or Friday.

This analysis is published about 09:55 p.m. EST. Click on charts to enlarge.

The aqua blue trend lines are critical. Draw the first trend line from the low of 1,158.66 on 25th November, 2011 to the next swing low at 1,266.74 on 4th June, 2012. Create a parallel copy and place it on the low at 1,560.33 on 24th June, 2013. While price remains above the lower of these two aqua blue trend lines we must assume the trend remains upwards. This is the main reason for the bullish wave count being my main wave count.

Bullish Wave Count.

S&P 500 daily 2014

This bullish wave count expects a cycle degree correction was over at 666.79 for a fourth wave, and a new cycle degree bull market began there for a fifth wave. Within cycle wave V primary waves 1 and 2 are complete. Within primary wave 3 intermediate wave (1) is complete.

There are several possible structures that intermediate wave (2) can take. It is most likely to be a zigzag, but it may also be a flat, combination, double zigzag or double flat. It could also possibly be a triple, but that has an extremely low probability. It may not be a triangle.

If intermediate wave (2) is a flat correction or a combination then within it we may see a new high above 1,902.17. For this reason there is no upper invalidation point for this bullish wave count. A new high above 1,902.17 would eliminate the bearish scenario as described in this analysis below.

Intermediate wave (2) should last several weeks and may last about two or three months. It should be choppy and overlapping and it should find support at the lower aqua blue trend line. A breach of this trend line by more than 3% of market value would see this bullish wave count discarded in favour of the bearish wave count below.

S&P 500 hourly 2014

The small channel about minute wave ii is clearly breached with downwards movement. If this downwards movement continues lower tomorrow to complete another five wave impulse for minuette wave (i) then I will have further confidence in this wave count.

At 1,822 minute wave iii would reach 1.618 the length of minute wave i. Minute wave i lasted two days. Minute wave iii is extending and so should be longer in duration. It may complete in a total Fibonacci five or eight days, most likely. So far it has lasted just one day.

When minuette wave (i) downwards is a completed five wave impulse then I would expect to see a correction for minuette wave (ii). Minuette wave (ii) would most likely find resistance at the upper edge of the base channel I have drawn about minute waves i and ii (downwards sloping pink channel). Minuette wave (ii) may not move beyond the start of minuette wave (i) above 1,886.

If minute wave iii is typically extended then we may see its second and fourth wave corrections show up on the daily chart as green candlesticks; when minuette wave (i) downwards is complete then minuette wave (ii) upwards may be time consuming enough to show on the daily chart as a green candlestick.

S&P 500 5 minute 2014

Bearish Alternate Wave Count.

S&P 500 daily bear 2014

This bearish alternate wave count expects that the correction is not over. The flat correction which ended at 666.79 was only cycle wave a of a larger super cycle second wave correction.

Cycle wave b is now a 143% correction of cycle wave a, just a little longer than the maximum common length of 138% for a B wave of a flat correction.

Cycle wave b is now a complete zigzag structure.

A clear breach of the large maroon – – – channel on the monthly and weekly charts is required for confirmation of this wave count. If that happens then this would be my main wave count and would be strongly favoured. Only once this wave count is confirmed will I calculate downwards targets for cycle wave c for you; it would be premature to do that prior to confirmation.

Within cycle wave c no second wave correction may move beyond the start of its first wave above 1,902.17.

Cycle wave c should move substantially below the end of cycle wave a below 666.79.