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An increase in downwards momentum was expected for the main Elliott wave count. The target at 1,946 was exceeded.

Summary: The fourth wave correction is confirmed. I expect downwards movement to continue tomorrow to a short term target at 1,922 – 1,921. Thereafter, a micro degree fourth wave should move price sideways for one to two days. The invalidation point is at 1,967.31.

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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 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 provides 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). Downwards movement may 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.

S&P 500 hourly 2014

Downwards movement increased in momentum as a third wave unfolded. The target was too close and has been exceeded. A new target has been calculated because this structure is still incomplete.

At 1,922 micro wave 3 would reach 2.618 the length of micro wave 1. At 1,921 submicro wave (5) would reach equality in length with submicro wave (1). This gives a one point target zone calculated at two wave degrees so it has a good probability.

Submicro wave (3) is just 2.49 points longer than 1.618 the length of submicro wave (1).

I have drawn an acceleration channel about this downwards movement (as downwards movement continues keep redrawing the channel). Draw the first trend line from the end of micro wave 1 to the low as price moves lower. Place a parallel copy on the end of micro wave 2. When micro wave 3 is complete this channel will be an Elliott channel. I would expect micro wave 4 to be very likely to find resistance at the upper edge of this channel.

Micro wave 4 may not move into micro wave 1 price territory above 1,967.31.

Micro wave 2 was a brief zigzag lasting only seven hours, but it does show on the daily chart slightly. I would expect micro wave 4 to also show on the daily chart to give the wave count the right look. It would most likely be a shallow sideways correction, either a flat, triangle or combination. It is likely to be more long lasting than just seven hours because sideways corrections do tend to be longer lasting than zigzags.

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.

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 07:14 p.m. EST.