I had expected more downwards movement for Friday’s session. This is not what happened. Upwards movement breached the invalidation point on the hourly Elliott wave chart.
Summary: Movement above 1,999.79 would confirm that this correction is over and price should breakout to the upside. After confirmation of a trend change the first target for upwards movement to end is at 2,044. While price remains below 1,999.79 it is possible that it could move lower, but not below 1,952.80.
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Bullish Wave Count
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.
Within minor wave 5 there is no Fibonacci ratio between minute wave i and iii. This makes it more likely that minute wave v will exhibit a Fibonacci ratio to either of i or iii. Within minor wave 5 minute waves i and iii are both extended. This means that minute wave v may not extend, it should be relatively short and brief. At 2,044 minute wave v would reach 0.382 the length of minute wave i. The next target is at 2,092 where minute wave v would reach 0.618 the length of minute wave i.
I would expect to see more divergence between price and MACD develop over coming weeks as minute wave v unfolds.
I would expect minute wave v to be relatively brief, it should be over within about three or four weeks.
Minute wave ii lasted 14 sessions and was a relatively deep 55% zigzag correction. Minute wave iv is showing alternation as a shallow flat correction.
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.
Minute wave iv may be over as an expanded flat correction and minuette wave (c) within it is just 1.44 longer than 1.618 the length of minuette wave (a).
Ratios within minuette wave (c) are: there is no Fibonacci ratio between subminuette waves i and iii, and subminuette wave v is just 0.5 longer than 0.146 the length of subminuette wave i.
Draw a channel about minuette wave (c). When this channel is clearly breached by upwards movement that shall be some indication that minuette wave (c) is over.
Movement above 1,999.79 would invalidate the alternate hourly wave count below and would provide confidence and confirmation in this wave count. At that stage I would have confidence in the targets.
Within minute wave v no second wave correction may move beyond the start of its first wave below 1,965.99.
Alternate Hourly Wave Count.
It is possible that minuette wave (c) may move lower if it is unfolding as an ending contracting diagonal. However, this diagonal structure has a few problems which reduce its probability and this is why I am presenting it as an alternate.
Diagonals normally have second and fourth waves which are deep corrections, between 0.66 to 0.81 the first and third waves. This structure has subminuette wave ii which is only 0.52 of subminuette wave i.
A contracting diagonal should have trend lines which clearly converge. This diagonal has trend lines which are closer to parallel.
Diagonals normally adhere nicely to their trend lines. For this diagonal within subminuette wave iii at the end the candlesticks slightly overshoot the lower trend line.
Because subminuette wave iii is shorter than subminuette wave i the diagonal may only be contracting. Subminuette wave iv should be shorter than subminuette wave ii and so should not move above equality in length with subminuette wave ii above 1,987.36.
It is possible that subminuette wave iii is not over and upwards movement may be micro wave B. Micro wave B may not move beyond the start of micro wave A above 1,999.79.
Movement above 1,999.79 would invalidate the diagonal structure for minuette wave (c) and provide confidence in the main hourly wave count.
Bearish Alternate Wave Count
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 08:50 p.m. EST.