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Downwards movement was not expected for Tuesday’s session. The invalidation point at 1,990.10 on the hourly chart was breached.

The Elliott wave count is changed.

Summary: I expect that minute wave iii is actually over sooner than expected. A clear breach of any best fit channel on the hourly chart supports this. A larger correction has arrived. Minute wave iv should last about three weeks, maybe a bit longer. It should be very choppy and overlapping. It should take price down close to the upper aqua blue trend line on the daily chart.

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Bullish Wave Count.

S&P 500 weekly 2014

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.

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.

S&P 500 daily 2014

A clear breach of the channel on the hourly chart with Tuesday’s strong downwards day strongly indicates that minuette wave (v) is over and so minute wave iii is also over, well short of the target I had calculated.

Within minute wave iii minuette wave (v) did not reach equality in length with minuette wave (i) (which was what the target was based upon), but it is 3.01 points short of 0.618 the length of minuette wave (iii).

There is no Fibonacci ratio between minute waves iii and i. This makes it more likely we shall see a Fibonacci ratio between minute wave v and either of iii or i, so when minute wave iv is complete I should be able to calculate a target with a reasonably high probability.

Minute wave ii lasted 14 sessions and was a relatively deep 55% zigzag correction. Given the guideline of alternation I would expect minute wave iv to be a more shallow sideways correction. It is most likely to be a flat, double flat, combination or triangle. These structures tend to be long lasting, so I would expect it to take longer than three weeks.

Combinations, expanded flat corrections and running triangles all include new price extremes beyond their starts. Minute wave iv may include a new high above 2,011.17, should be very choppy and overlapping, and will be difficult to analyse (alternate wave counts will be necessary). While it is unfolding the wave count will change. There are more than thirteen possible structures it may take.

I would expect minute wave iv to end short of the upper aqua blue trend line, continuing a pattern the S&P has shown now for over a year.

I have drawn the parallel channel about minute wave iii using Elliott’s second technique: draw the first trend line from the lows of minuette waves (ii) to (iv), then place a parallel copy on the high of minuette wave (iii). 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.

S&P 500 hourly 2014

I have adjusted the end of minuette wave (v). I am seeing subminuette wave iv as a sideways combination, showing alternation with the zigzag of subminuette wave ii. There are no adequate Fibonacci ratios between subminuette waves i, iii and v.

With this adjusted wave count the channel is now drawn correctly using Elliott’s technique, which has clearly been breached. The channel breach provides trend channel confirmation that minuette wave (v) is over. The next wave is underway.

The first movement within minute wave iv should be a five down. While that is unfolding no second wave correction may move beyond the start of its first wave above 2,011.17.

When a 5-3-5 down is complete then we may see a new high above the short term invalidation point at 2,011.17. I will expect minuette wave (a) to most likely unfold as a zigzag. It may also be a flat correction or combination though.

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 07:22 p.m. EST.