Monday completed a small red candlestick. On the hourly chart this movement fits perfectly as a complete first and second wave. Downward movement remains above the invalidation point, and found support at the lower edge of the channel on the hourly chart.

Summary: The short term target for tomorrow is at 2,023. The target for this upwards movement to end in the mid term remains the same at 2,025 – 2,030. This target may be met this week.

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.

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, which should not breach the upper of the two aqua blue trend lines given that the upper trend line has held for over a year now.

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 this target then I will again calculate a second higher target, although at this stage looking at trend channels and time frames this first lower target looks much more likely to be correct so I will leave it as the sole target for now.

Minuette wave (v) has now lasted 21 sessions. It may not exhibit a Fibonacci duration. I would expect it to end this week.

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.

At 2,030 subminuette wave v would reach equality in length with subminuette wave i. Because there is no Fibonacci ratio between subminuette waves i and iii I would expect to see a Fiboancci ratio between subminuette wave v and either of i or iii, and equality with the first wave is the most likely.

The target zone of 5 points is calculated at two wave degrees, and expects the most common ratio for both fifth waves. The upper edge of the target zone would be favoured as it is calculated at the lower wave degree.

Monday’s session may have seen micro waves 1 and 2 within subminuette wave v complete. If each subwave of subminuette wave v lasts one day or session then the final target may be met in three more sessions.

Tomorrow I would expect to see a small increase in upwards momentum as micro wave 3 unfolds. At 2,023 micro wave 3 would reach 1.618 the length of micro wave 1.

Draw a channel about minuette wave (v) using Elliott’s second technique: draw the first trend line from the lows labeled subminuette waves ii to iv, then place a parallel copy on the high labeled subminuette wave iii. The lower edge of this channel is showing nicely where downwards movement is finding support. The upper edge of this channel may show were upwards movement may find resistance.

Micro wave 2 may not move below the start of micro wave 1 at 1,990.10.

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 01:04 a.m. EST.