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The charts say S&P is heading into a ‘treacherous’ pullback
By Avi Gilburt | August 14, 2017

Following the Elliott Wave analysis:

Avi Gilburt reads the Elliott Waves and says it’s not the end of the bull market

Since the S&P 500 began the rally we were expecting off the 1800 region in February 2016, we have been targeting this rally to strike at least the 2487 region before we saw a bigger pullback, as you can see from the larger target on our daily chart.

Over the last several months, I refined my target for this move up in the S&P 500 SPX, +1.04% to the 2487-2500 region, which is the lower end of that target box on the daily chart. And, for the last few weeks, I have been warning all those that were willing to listen that we were likely quite close to an intermediate-term market top, as I believed we were completing wave (3) noted on the chart.

Last week, the market struck a high of 2490 on the SPX, and reversed quite strongly. Moreover, the market struck this target region on technical indications that were flashing textbook signals for this wave (3) to be topping. This means that my primary perspective right now is that wave (3) has completed, and we have now entered into a wave (4) pullback. And, as alluded to in the title of this post, I am expecting to finally see some volatility come back into the market in the coming months.

Within that wave (4), a standard pullback follows an (a)(b)(c) corrective pattern, as noted on the charts. The (a) wave often targets the region of the .236 retracement of wave (3) (just below the 2400 region), whereas the (c) wave often targets the .382 retracement region of wave (3) (around the 2300 region). Based upon Elliott’s rules of alternation, since wave (2) was only a three-week event, my expectation would be that wave (4) should take months.

Moreover, while I have annotated my chart with a standard (a)(b)(c) corrective pattern, it is quite possible that this wave (4) may even form a triangle, and potentially last into the Thanksgiving holiday. However, it is way too early to entertain that possibility, but I have noted it before, and want to at least put it on your radar screen.

Again, I want to warn you (and I will likely continue to repeat this warning) that fourth waves are the most variable and treacherous of all the Elliott Wave structures. That means they often take “unexpected” twists and turns, which can chop up even the best of traders. Therefore, knowing that you are in a 4thwave is powerful information, because it forces you to be much less aggressive in trading within this region. Moreover, it is also strongly suggested that you reduce your position sizing during this 4thwave structure, and take profits when you can, rather than allowing the market to turn on you and wiping those profits out.

My alerts and updates notified members quite well about my expectation of wave (3) concluding. Moreover, I provided my analysis which suggested we would likely be testing the 2440/50 support region on the SPX once we topped this past week. Yet, that was the easy part.

As we now move further into this fourth wave, the question I have on my mind is if we see a direct drop to the 2380-2400 region to complete the (a) wave early this week, or if we spend most of the week in a choppy b-wave rally before we drop down in a c-wave later this month to complete the (a) wave. The standard structures we see more often call for a b-wave rally, before we drop down to the 2400 region to complete the bigger (a) wave of (4). And, that b-wave rally can even make a higher high, so there is a possibility we may even still strike the 2500 region.

But, for now, I believe the higher probability target is the 2380-2400 region on the SPX to be struck within the month of August, with my preference being later this month, while recognizing it can happen as early as this week. Remember, there is only so much micro-guidance I can reasonably provide within a fourth-wave structure.

Now, before I leave you for the rest of the week, I want you to emotionally prepare for the bearish sentiment which will likely surround you as we move through this fourth wave. You will certainly hear from many analysts about how this bull market from 2009 is over. You will likely hear about impending market crashes again.

But I want you all to remain focused on the higher probability that this is only a multi-month pullback, which was quite expected by us, and the pattern which called for this pullback to occur at this time also suggests that the market is setting up a rally to 2600+ into 2018.

So, as they used to say in Jellystone Park, “Do Not Feed The Bears.”

See charts illustrating the wave counts on the S&P 500.

http://www.marketwatch.com/story/the-charts-say-the-sp-is-heading-into-a-treacherous-pullback-2017-08-14

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