Downwards movement continued as expected. The target at 1,922 – 1,921 was passed and exceeded by 4.63 points. I have two hourly Elliott wave counts for you today.

Summary: It is most likely we shall see more downwards movement to begin the new trading week. The short term target is 1,914.

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.

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.

In the short term, next week, I expect the S&P to move into a low degree B wave. B waves exhibit the greatest variety in form and structure. They are the most difficult movements to analyse and multiple wave counts will be possible. They are often choppy overlapping sideways movements, but they are sometimes quick sharp zigzags. Flexibility and patience are essential during B waves.

Main Hourly Wave Count.

I have adjusted the main wave count and the alternate is the same as the last wave count.

This main wave count has only a slightly better probability than the alternate. It follows the most common scenario of extended third waves.

The channel drawn here is an acceleration channel. When micro wave 3 is complete redraw the channel using Elliott’s first technique. When the channel is clearly breached by upwards movement that shall be indication that subminuette wave a is over and subminuette wave b has arrived.

There is no Fibonacci ratio between submicro waves (1) and (3). At 1,914 submicro wave (5) would reach 1.618 the length of submicro wave (1).

Ratios within submicro wave (3) are: minuscule wave 3 has no Fibonacci ratio to minuscule wave 1, and minuscule wave 5 is just 0.55 longer than 0.382 the length of minuscule wave 3.

Importantly, within minuscule wave 3 there are no adequate Fibonacci ratios between nano waves i, iii and v. This is unusual for the middle of an extended third wave. It is for this reason that I judge this main wave count to have only a slightly better probability than the alternate below.

When micro wave 3 is complete then micro wave 4 is reasonably likely to find resistance at the upper edge of the channel. It may not move into micro wave 1 price territory above 1,967.31.

Alternate Hourly Wave Count.

It is possible that subminuette wave a is a completed five wave impulse downwards.

Ratios within subminuette wave a are: micro wave 3 is 3.60 points short of 2.618 the length of micro wave 1, and micro wave 5 is just 1.73 points short of 0.382 the length of micro wave 3.

Ratios within micro wave 3 are: submicro wave (3) is just 2.49 points longer than 1.618 the length of submicro wave (1), and submicro wave (5) has no Fibonacci ratio to submicro waves (3) or (1).

If subminuette wave a is complete then subminuette wave b should begin with a first five up. While that is underway no second wave correction may move beyond the start of its first wave below 1,916.36. This short term invalidation point will only apply for a short time, as within subminuette wave b it may include a new low below 1,916.36 if it is an expanded flat, running triangle or combination.

Subminuette wave b may find resistance at the lower edge of the orange channel copied over here from the daily chart.

Subminuette wave b may not move beyond the start of subminuette wave a above 1,991.39.

Bearish Alternate Wave Count

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 12:53 a.m. EST.