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I had expected more upwards movement to a target at 2,009.86. This is not what happened. Movement below 1,979.91 invalidated the main hourly Elliott wave count.

Summary: Another fourth wave correction may have arrived on Friday. This would be confirmed with movement below 1,955.59. We may get this confirmation next week. This correction may last either 21 or 34 days.

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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

There are a couple of things about this wave count of which I am confident. I see minor wave 3 within intermediate wave (1) as over at 1,729.86 (19th September, 2013). It has the strongest upwards momentum and is just 0.76 longer than 2.618 the length of minor wave 1. At 455 days duration this is a remarkably close Fibonacci ratio. The subdivisions within it are perfect. If this is correct then minor wave 4 ends at 1,646.47 and this is where minor wave 5 begins.

Minor wave 5 may be only one of two structures: a simple impulse or an ending diagonal. At this stage an ending diagonal looks very unlikely; minor wave 5 is unfolding as an impulse. If minor wave 5 has passed its middle then I would expect to see more divergence between price and MACD develop over coming weeks.

Along the way up towards the final target I would expect to see two more corrections complete: the next for minuette wave (iv) and the last for minute wave iv.

Minuette wave (iv) may not move into minuette wave (i) price territory below 1,858.71.

At 2,218 minor wave 5 would reach equality in length with minor wave 3. This target may be met in October.

I have drawn a parallel channel about minuette wave (iii) using Elliott’s first technique: draw the first trend line from the highs of subminuette waves i to iii, then place a parallel copy on the low of subminuette wave ii. A clear breach of this channel to the downside would provide strong confirmation that minuette wave (iv) has arrived.

The large maroon – – – channel is copied over from the weekly chart. It is drawn in exactly the same way on bull and bear wave counts. For the bull wave count this channel is termed a base channel about primary waves 1 and 2. A lower degree second wave should not breach the lower edge of a base channel drawn about a first and second wave one or more degrees higher. The lower maroon – – – trend line differentiates the bull and bear wave counts at cycle degree and monthly chart level.

Main Hourly Wave Count.

S&P 500 hourly 2014

If subminuette wave iv is seen as a barrier triangle then subminuette wave v would be expected to be either very short or a very long extension. This main wave count expects subminuette wave v is over and was very short. The alternate looks at the possibility of an extended fifth wave.

So far to the downside it looks like there is an incomplete five wave impulse which has just completed a triangle in a fourth wave position. This indicates one more downwards wave for micro wave 5 should begin the new trading week. At 1,974.05 micro wave 5 would reach equality in length with micro wave 1.

This would complete subminuette wave a. This wave count may also be moved down one degree, this first wave down may only be micro wave 1 within subminuette wave a. Once there is more structure within this correction then I would have a clearer idea of what degree to label this movement.

Either way downwards movement for minuette wave (iv) has only just begun and should continue lower.

Once subminuette wave a is complete, because it is subdividing as a five, subminuette wave b may not move beyond its start above 1,991.39.

This main wave count would be confirmed with movement below 1,955.59 when the alternate is invalidated. Confirmation of this main wave count would be confirmation that minuette wave (iv) has arrived.

S&P 500 5 minute 2014

Alternate Hourly Wave Count.

S&P 500 hourly alternate 2014

By simply moving the degree of labeling within subminuette wave v down one degree it is possible that only the first wave within it is complete.

Micro wave 2 may not move beyond the start of micro wave 1 below 1,955.59.

This alternate expects subminuette wave v to be a long extension. In my experience fifth waves following triangles are most often short than long so this wave count has a lower probability than the main wave count.

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.

The structure and subdivisions within primary wave C for the bear wave count are the same as for intermediate wave (1) for the bull wave count. Thus the short to mid term outlook is identical.

The differentiation between the bull and bear wave count is the maroon – – – channel. The bull wave count should see price remain above the lower maroon – – – trend line. The bear wave count requires a clear breach of this trend line. If this trend line is breached by a full weekly candlestick below it and not touching it then this bear wave count would be my main wave count and I would then calculate downwards targets.

We should always assume the trend remains the same until proven otherwise; the trend is your friend. While price remains above the lower maroon – – – trend line I will assume that the S&P 500 remains within a bull market.

This analysis is published about 02:35 a.m. EST.