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Yesterday’s Elliott wave count expected downwards movement towards a short term target. Price has moved lower producing a red candlestick, and the channel on the hourly chart may be providing some resistance to upwards movement.

Summary: A new low below 1,925.78 would be first confirmation of a trend change. I am expecting overall downwards movement for about five weeks or a bit longer from this point. In the short term the target for a third wave down is at 1,927, which may be met in another three or four days time.

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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) may be over here.

Minor wave 5 is a complete ending contracting diagonal. Within an ending diagonal all the subwaves must be single zigzags, and the fourth wave should overlap first wave price territory.

Contracting diagonals commonly end with an overshoot of the 1-3 trend line. Apparently (according to Frost and Prechter, EWP page 38) the overshoot always occurs with a volume spike (I have not noticed this to be so). The S&P 500 reliably has a volume spike on the 20th of each third month, and Friday continued this pattern. Is this the final piece of the puzzle for this structure? It may end here.

But while we have no confirmation of a high in place we must accept the possibility of more upwards movement.

The diagonal is contracting because minute wave iii is shorter than minute wave i. Minute wave v may not be longer than equality with minute wave iii at 1,973.72 because a third wave may never be the shortest wave. So if we see more upwards movement and new highs I do not expect to see movement above 1,973.72 in the mid term.

There is divergence with price trending higher and MACD trending lower on the weekly chart, and a little on the daily chart for most recent movement. This classic technical divergence supports this wave count and indicates that at least a reasonably sized correction should arrive soon. By reasonably sized I mean in fitting with this bullish wave count: Intermediate wave (2) should last at least two weeks, and more likely about five weeks. It should not breach the lower aqua blue trend line nor the lower edge of the maroon – – – channel. The wave count remains bullish at primary degree.

S&P 500 hourly 2014

I have moved the degree of labeling within downwards movement up one degree today because the upwards movement labeled subminuette wave ii is larger than a micro degree wave.

So far we do not have a clear five down to the downside and there is only a three wave movement.

In order to have confidence in this wave count at this stage I want to see a clear five down develop on the hourly chart. I also want to see price move below 1,925.78. While price remains above this point it is possible that subminuette wave v within intermediate wave (1) is not over and we may yet see new highs, although this possibility does seem rather unlikely.

This wave count expects to see downwards momentum increase strongly tomorrow and over the next few days as the middle of a third wave down unfolds. At 1,927 minuette wave (iii) would reach 1.618 the length of minuette wave (i). Corrections along the way should find resistance at the upper edge of the base channel, and so subminuette wave ii should be over there.

It is also possible that minuette wave (ii) is incomplete and unfolding as an expanded flat correction. If tomorrow begins with upwards movement the invalidation point is at 1,968.17 because minuette wave (ii) may not move beyond the start of minuette wave (i).

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 (or w) of a larger super cycle second wave correction.

Cycle wave b (or x) is now longer than the maximum common length of 138% for a B wave of a flat correction, at 150%.

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 (or y) 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. Once a trend change is confirmed then this bearish wave count will have an invalidation point at 1,968.17.

This analysis is published about 06:20 p.m. EST.