Looking For A Rally
By
Avi Gilburt
While I did not expect the market to break down below the upper support region on the first try, when it did, it seems to have made a move directly to the next support region I have been highlighting – the 5850SPX region.
Thus far, the market has been holding that support. And, I am viewing this decline as an a-wave. But, the question now is if it is complete. The futures have struck the 5850SPX region, but the cash index has not. And, as we were hanging out near the lows yesterday in the evening, I outlined in an alert I posted in the trading room that the market would have to move through the 6000ES region in order to suggest that an expected bounce is more than just a 4th wave.
Today, the market rallied and spiked the 6000ES level to the 6005ES region, and spiked right back down. Moreover, the manner in which it has turned down is overlapping and seemingly corrective. Therefore, my primary assumption was the rally today was an [a] wave of a b-wave rally, and today’s pullback a [b] wave.
Of course, the alternative is that today’s high was wave 4 and wave 5 is taking shape as an ending diagonal 5th wave to complete the [c] wave of the a-wave. But, I want to add an additional point here, which I made in the trading room earlier today. While I have noted on the 5-mintue SPX chart that a break down below the 5850SPX region makes it likely we are going down to test the alt iv support box, I do not believe it will be a direct move down, at least based upon the current structure. Rather, I think it is reasonable to expect a b-wave bounce first.
Once we move over today’s high, that is our indication that we are in the [c] wave rally, and we can begin to calculate the most likely target within the target box overhead.
Now, I am going to reiterate what I have been saying for some time. This market has not been kind to bears. For this reason, I do not believe it to be wise for most of you to be aggressively shorting the next rally. And, if you want to trade to the short side, the wisest course of action would be to allow the [c] wave of the b-wave to complete, followed by a 1-2 downside structure, for which you can short the wave 2 bounce, and place your stops at the point at which wave 1 down began.
So, in summary, I believe we have completed, or are about to complete, an a-wave decline. Thereafter I am expecting a rally which I am counting as a b-wave, which will then set up a c-wave decline testing our alt iv support.
