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Last Elliott wave analysis expected Monday to open with downwards movement to a short term target at 1,974.05 before an upwards correction. Price did begin by moving lower, to reach down to 1,967.31, 6.74 points below the target, before turning upwards. The Elliott wave count remains mostly the same.

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 13 or 21 days. In the short term for tomorrow I expect a third wave down to begin towards 1,942.

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

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.

There is now a complete five wave structure downwards. I have moved the degree of labeling for this movement down one degree today. I do not think that minuette wave (iv) is over halfway through and this is more likely just micro wave 1 within subminuette wave a.

Minuette wave (ii) was a shallow 37% sideways moving combination. Given the guideline of alternation minuette wave (iv) is most likely to be a deep zigzag or double zigzag correction. Minuette wave (ii) lasted a Fibonacci 34 days. I would expect minuette wave (iv) to be more brief and last either 13 or 21 days. So far it has lasted only two.

Minuette wave (iv) should breach the channel containing minuette wave (iii) so movement below the lower orange trend line is very likely.

At 1,942 micro wave 3 would reach 1.618 the length of micro wave 1. Micro wave 3 should show an increase in downwards momentum.

If micro wave 2 continues higher as a double zigzag then it may not move beyond the start of micro wave 1 above 1,991.39. If micro wave 2 moves higher then the target for micro wave 3 must also move correspondingly higher.

This main hourly wave count would be confirmed with a new low below 1,955.59.

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.

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.

So far micro wave 2 is an incomplete zigzag. Submicro wave (B) may not move beyond the start of submicro wave (A) above 1,991.39. At 1,957 submicro wave (C) would reach equality in length with submicro wave (A).

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

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 09:52 p.m. EST.