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I had again expected the small fourth wave correction to be over more quickly than it was, and for Thursday’s session to produce a green candlestick. The fourth wave continued and moved lower to complete a small red doji.

The wave count remains the same.

Summary: In the short term I expect upwards movement from here. The target can now be calculated at two wave degrees so widens to a zone: 2,025 to 2,031. This target may be met in about two or three days time.

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.

Because there is already a very close Fibonacci ratio between minor waves 1 and 3 I would not actually expect to see a Fibonacci ratio between minor wave 5 to either of 1 or 3. This means that the target for intermediate wave (1) to end would best be calculated at minute wave degree, within minor wave 5. I will not be able to do that until minute wave iv has ended.

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 completion of intermediate wave (1) I would expect one more correction complete for minute wave iv.

Within minuette wave (v) no second wave correction may move beyond the start of its first wave below 1,904.78.

Within minute wave iii there is no adequate Fibonacci ratio between minuette waves (iii) and (i). This makes it more likely that minuette wave (v) would exhibit a Fibonacci ratio to either of minuette waves (i) or (iii). At 2,025 minuette wave (v) would reach equality in length with minuette wave (i). As this is the most common relationship between first and fifth waves this should be the first expectation.

If price keeps rising through the first target, or it gets there and the structure is incomplete, then I will move the expectation to the next target.

At 2,069 minute wave iii would reach 1.618 the length of minute wave i. At 2,082 minuette wave (v) would reach equality in length with minuette wave (iii). This gives a 13 point target zone which can be narrowed when it can be calculated at a third wave degree towards the end of the movement.

On the daily chart the current small fourth wave correction began with a small gravestone doji, indicating resistance. It may have ended on Thursday with a small dragonfly doji, indicating support. These doji may be an indication of a larger trend change to come, this fits perfectly with the wave count at the hourly chart level.

I have drawn a parallel channel about minute wave iii using Elliott’s first technique: draw the first trend line from the highs of minuette waves (i) to (iii), then place a parallel copy on the low of minuette wave (ii). Minuette wave (iv) slightly breaches the lower edge of this channel, and fits within the channel. Minuette wave (v) may end about the upper edge of this channel.

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

Subminuette wave iv was not a triangle and instead completed as an expanded flat correction. There is perfect alternation between subminuette wave ii as a deeper zigzag and subminuette wave iv as a very shallow flat.

I have redrawn the channel using Elliott’s second technique because this fits perfectly: draw the first trend line from the lows of subminuette waves ii to iv, then place a parallel copy on the high of subminuette wave iii. The lower edge of this channel should show where downwards movement should find support along the way up to the target. Subminuette wave v should end either midway within the channel, or at the upper edge. When this channel is clearly breached by subsequent downwards movement that shall provide indication minuette wave (v) is over and the next wave is underway.

There is no Fibonacci ratio between subminuette waves iii and i, which makes it more likely we shall see a Fibonacci ratio between subminuette wave v and either of iii or i. At 2,031 subminuette wave v would reach equality in length with subminuette wave i. I favour the upper end of this target zone because it is calculated at a lower wave degree. The target zone has a reasonably good probability because it expects the most common relationship for both of these fifth waves.

Within subminuette wave v no second wave correction may move beyond the start of its first wave below 1,990.52.

S&P 500 5 minute 2014

Alternate Hourly Wave Count.

S&P 500 hourly alternate 2014

This hourly alternate chart is identical to the main hourly wave count except here the degree of labeling is moved down one degree.

This alternate labeling fits the second target better, and expects that minuette wave (v) will be extended reaching equality (about) with the extended minuette wave (iii).

Both degrees of labeling are valid. I will expect that the main hourly wave count and the lower target has a slightly higher probability than this alternate, simply because it expects the most common ratio between minuette waves (v) and (i).

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 07:05 p.m. EST.