Our correction seems to have begun right when expected, and just as the bears' backs were literally up against the proverbial wall. But the 1490ES level still remains the line in the sand, governing how deep this correction will be.
Last weekend, I said that once the Select Sector SPDR-Financial XLF �moves into our target region between 17.91-17.98, I would expect a correction to potentially begin at that time. The XLF topped at the 17.94 level, and our correction seems to have begun.
What we saw with this action in the XLF was how well the Fibonacci Pinball system works in identifying points at which tops may be seen. Last week, I explained how the pattern in the XLF was set up in an almost perfect Fibonacci Pinball structure, needing only one more smaller rally to complete a 5 wave structure. That is exactly what we saw into our target region. And if you take into account the after-hours activity, it actually topped almost exactly at our 2.00 extension.
Early Wednesday morning, before the cash market opened, I sent out a Wave Alert when the E-Mini S&P 500 (CME) Mar 2013 ESH3 �hit 1530, wherein I noted that the ending diagonal was potentially complete, and this was the last stand for the bears if they were going to initiate a correction rather than allowing the bulls to take the market up to the 1564ES region.
I noted specifically that any immediate bullish potential in the current pattern is invalidated with a break down below 1519ES, which can open the door to a strong decline to our 1490-1494ES support region.
In fact, we were able to utilize Elliott Wave theory to identify our target region for a decline. When an ending diagonal completes, it is usually followed by a sharp move in the opposite direction, which targets the region from which the diagonal began. So, it made our upper support region a clear target once this diagonal completed.
Well, as we now know, once 1519ES broke down, it led to a strong decline that completed right at the top of our support region on Thursday, as expected. On Friday, the market rallied in what is best counted as an a-b-c corrective rally back up toward the .618 retracement level of the prior decline. It would seem that, if we were still within wave iv of a larger wave 3, the decline into Thursday's bottom would be considered an (a) wave, whereas the rally on Friday would be considered a (b) wave. Therefore, the market is now set up for a (c) wave decline.
Again, based upon our standard Fibonacci Pinball methodology, when wave iii of 3 targets the 1.236 extension (which the market did slightly exceed when it hit 1530ES), we normally target the .764 extension for wave iv of wave 3, which is the 1468ES region. What is most interesting within this pattern at this time is that there is nice confluence with a top in the 1516/1517ES region with the 1468ES level, wherein the (c) wave would then be equal to 1.382 times the size of the (a) wave.
As for alternative patterns, as I have maintained for weeks now, until the 1490ES level is broken to the downside, the 1470ES region will not be seen. Since 4th waves tend to target the level of the 4th wave of one lesser degree, it would not be at all unusual for the market to bottom at the 1490ES level, which represents the level of the 4th wave of one lesser degree.
Furthermore, this region also represents the 1.00 extension of the larger Fibonacci Pinball pattern, which is also a common support for 4th waves.
Additionally, the 1490ES level would represent a Fibonacci (c)=.764*(a) relationship which could complete the wave iv. But we would need to see a clear 5 wave structure into that level to even begin to consider that wave iv would be completing at that level. And, again, it reiterates just how important seeing a strong break of the 1490ES level means to targeting any lower levels for this correction.
It is also for the reasons mentioned above that, if the market were able to move through the 1517ES level, it could target the 1526ES level, which would create a higher (b) wave, which would have a Fibonacci (a)=(c) relationship targeting the 1490ES level right on the money, and completing wave iv in such a pattern. This is also why a move through the 1526ES level would make me believe that the wave iv may have been completed at 1494ES, and have me looking for a pullback in a wave (2) of wave V of our larger degree wave 3 to buy long positions for our next rally leg to the 1564ES level.
Lastly, as you can see from the yellow count on the daily chart, we still have the possibility that a larger wave 4 pullback to the 1400 region may be seen. But the only way I would even consider entertaining such a possibility is by a break down below 1468ES.
So, the upcoming week is going to be all about follow-through. If the bears can take us down early next week, and break 1490ES, or even develop a pattern that projects to take us below 1490ES, then my primary target will be the 1468ES region to complete this wave iv of a larger wave 3. A 5 wave decline into that level will have me buying long positions with a minimum target of 1536ES and an ideal target of 1562ES.
But if the bears can only muster a 5 wave decline into the 1490ES region, I may consider buying an initial long position at that level, with the same upside targets just mentioned, and will buy the full long position upon confirmation of that bottom being in place.
See charts illustrating wave counts on the Emini S&P 500 and INX.
No comments:
Post a Comment