Monday, October 9, 2017

SPX Update

Last update assumed that Friday's decline would be a corrective fourth wave, and so far we don't have a definite answer from the market on whether that was correct or not.  Let's look at a near-term chart first, to see how this move breaks down:

No change to the bigger picture, except to note that the decline found support a bit higher than the noted trend line.  This suggests that either buying pressure was too strong for SPX to make it "all the way down," or the decline was in fact wave 1/a and we'll tag (or break) the trend line on the next wave down.  Either way, I am still inclined to think the rally has at least a bit farther to run.

Over the weekend, a reader asked why wave 3 on the chart above appeared to be the shortest wave.  It appears that way simply because the chart lacks the level of detail needed to see where wave 1 actually ends, and thus to see that 3 is not the shortest wave. 

Below, I've drawn up a quick, more detailed look at the wave structure.  As we can see, wave 1 appears to have had what Elliott referred to as "an irregular top" -- or what we would refer to as "an expanded flat."  The actual price high appears to be a B-wave, while wave 1 appears to end prior to the price high:

In conclusion, I'm inclined to think that Friday's dip was wave C of an expanded flat, and thus that the rally is still underway.  It is a little tricky, because the decline was impulsive, so there's only a narrow margin for error here.  If the prior high at 2552 wave is not a B-wave, then Friday's decline was only the first leg down of either a two-legged correction or the start of something more significant.  Bears are of course free to ignore my interpretation, and act in whatever manner their conscience dictates.  Trade safe.

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