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The main hourly Elliott wave count expected more downwards movement which is what happened during Friday’s session.

Both wave counts remain valid.

Summary: Minute wave iv has now lasted six days and should continue for at least two more weeks. Overall, minute wave iv will be very choppy and overlapping, and may include a new high next week.

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Bullish Wave Count.

S&P 500 daily 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.

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 good 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 may take longer than three weeks.

Combinations, expanded flat corrections and running triangles may 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.

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

This main wave count expects that within this correction the first downwards movement will be a zigzag for subminuette wave a (or w).

So far there may be a series of three overlapping first and second wave corrections. This wave count now expects to see more downwards movement, which should break below the lower edge of the base channel.

Within minuscule wave 3 no second wave correction may move beyond the start of its first wave above 1,997.65.

At 1,952 micro wave 3 would reach 2.618 the length of micro wave 1. Micro wave 3 should show an increase in downwards momentum.

S&P 500 5 minute 2014

Alternate Hourly Wave Count.

S&P 500 hourly alternate 2014

It is possible to see a complete zigzag downwards with a following incomplete zigzag upwards. This alternate wave count expects that subminuette wave a (or w) is subdividing as a flat correction. The most common type of flat correction is an expanded flat, where the B wave moves beyond the start of the A wave and is a minimum 105% the length of the A wave. Micro wave B could make a new high above 2,011.17.

Movement above 1,997.65 would invalidate the main wave count and provide some confirmation for this alternate. At that stage micro wave B would need more upwards movement to complete its structure and would be very likely to move up to 2,008.35 or above so that it is a minimum 90% the length of micro wave A.

It is also possible though that subminuette wave a is subdividing as a double zigzag or double combination. If upwards movement does not reach the minimum 2,008.35 this idea would be correct.

This alternate wave count illustrates the problem with fourth wave corrections because there are more than 13 possible structures this fourth wave can take. At this early stage we can only say which structures are more likely and not which structure will be correct; at this stage the more likely possibilities are flats, combinations or triangles, and within these possibilities there still exists a great deal of variety.

Flexibility is essential when markets are range bound. I expect the S&P 500 will remain range bound for another two weeks at least. The only things I am certain of are where minute wave iv is most likely to end (close to the upper aqua blue trend line) and in what direction the breakout will be when it is done (upwards).

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 05:02 a.m. EST.