Overall downwards movement was expected for Tuesday’s session, and we have a red candlestick. Price moved higher first though, and remains below the invalidation point.

Summary: Another fourth wave correction may have arrived last Friday. This would be confirmed with movement below 1,955.59. We may get this confirmation this week. This correction may last either 13 or 21 days. In the short term for tomorrow I expect a third wave down to continue towards 1,946.

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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.

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 current correction for minuette wave (iv) and one more 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. Minuette wave (iv) may reach as low as the 0.618 Fibonacci ratio of minuette wave (iii) at 1,881.28, which would provide alternation in depth of correction between minuette waves (ii) and (iv) and would see downwards movement find final support about or just above the upper aqua blue trend line, continuing a pattern which has lasted about a year now.

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.

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.

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 shorter in time and last either 13 or 21 days because zigzags do tend to be shorter than combinations. So far it has lasted only three days.

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

At 1,946 micro wave 3 would reach 1.618 the length of micro wave 1. Micro wave 3 should show an increase in downwards momentum and so I would expect momentum to further increase tomorrow.

I am now more confident that micro wave 2 is most likely over and micro wave 3 downwards has just begun. Within submicro wave (3) no second wave correction may move beyond the start of its first wave above 1,981.37.

Draw a base channel about micro waves 1 and 2: draw the first trend line from the start of micro wave 1 to the end of micro wave 2, then place a parallel copy on the end of micro wave 1. I would expect micro wave 3 to have the power to break through support at the lower trend line, and along the way down upwards corrections should find resistance at the upper edge of the channel.

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

Alternate Hourly Wave Count.

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 more 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. At 1,961 submicro wave (C) would reach equality in length with submicro wave (A).

On this alternate chart, the channel about micro wave 2 is a corrective channel and I would expect downwards movement to find strong support at the lower edge of this channel. The lower trend line would provide earliest differentiation between the main and alternate hourly wave counts: the main wave count would expect this trend line to be strongly breached and this alternate would expect it to provide final support.

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

Bearish Alternate Wave Count

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 08:15 p.m. EST.