E-Wave for the S&P 500 Index

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Elliott Wave analysis:

* Tuesday, January 21, 2014

The market is at a major inflection point

For the last month, the market has been stuck in a trading range. In fact, this is quite reminiscent of the November through December time frame as well. So, the question is if we will see the same result. I am not quite so certain that the popular expectations will be fulfilled. But either way, once the market decides on a direction here, the following move should be of some significance.

Last week, I noted that if we were set up to head to immediate new highs, "then 1830 is the immediate support that the market must maintain in order to continue up in a c-wave of wave iii of the ending diagonal with a target in the 1847S region. However, if we break that level before we attain our target, then the market will likely head down to at least the 1814ES region, and potentially down as deep as the 1803/06ES region if it is going to find support for a wave (4)."

As we saw, the market was unable to maintain support at the 1830ES level, which opened the door to the expected drop which followed and found support at the 1809ES level. So, that left me with the primary perspective that that low was the bottom of wave (4). The question we will now be asking is if wave (5) will become another very extended wave of 200 points, or will the resistance region between 1847-1860ES stop us cold in our tracks and send us back down to see a 17 handle next. This is exactly why I look at the market at being at an incredible inflection point at this time, as the action over the next week or two can have major implications for the next two years.

Back in November, there were three times we came into the 1800 region, and each time at the highs, many analysts had been looking for an immediate follow through to 1900-plus in the market. But rather than follow through, each of the three times we experienced 20- to 50-point declines, which gave us a month-long chopfest and caused significant decay in options traders' accounts for those looking for an immediate move to 1900. However, at each high, I kept noting that I did not see any setup that was going to take us immediately to the 1900 region for which many were calling at the time.

For those of you who remember, I had suggested back in November to exit your long-term index positions in the S&P 500 once we completed the larger 3rd wave of the 5th of wave yellow 3 on our weekly chart, since I had expected a lot of whipsaw in 4th and 5th waves, and felt that the market was in a topping phase.

But I also suggested that you move into individual stocks, as identified by Stockwaves and Options with Xenia at Elliottwavetrader.net, as my expectation that the 5th wave was somewhat limited relative to many stock setups which had significantly greater upside potential. Those who followed my lead have been rewarded with some truly incredible double-digit percentage results over the last three months, whereas the S&P500 is up by approximately 4%, and not without some incredible whipsaws.

Now, as I have said over the last two weeks, I do see a potential setup that can not only take us to 1900, but which can take us to 2000 within the next couple of months. So, whereas the December rally which ensued after a several-week consolidation took us 40 points above the breakout level, a move over the current break out level of 1847ES, if there is one, will either be stopped cold between 1850-1866ES, or we are about to embark on a run to 2000. But the market is going to have to prove this to me before I am going to commit to jumping back into an index long for a 150-point rally. The 1866ES level is my main pivot point at this time.

However, my preferred count is that we are just about done with a smaller-degree 4th wave consolidation within wave (5), as long as we maintain support over the 1826/28ES region. That would mean that we should see a rally begin early next week, which should target the 1847ES region at a minimum, for a triple top, and potentially extend as high as the 1859ES 3.00 Fibonacci extension level.

Again, for the primary count to maintain its status, I do not want to see us breach below 1826ES, as that would make this pullback much less likely as a 4th wave and signify that the market has likely provided us with a more lasting top, especially with a follow through breakdown below 1817ES .

As an alternative at this time, if the market were to break down below 1826ES, but still maintain over the 1817-22ES support region, and then strongly reverse to the upside to take out the 1848ES region, it would make me give greater weight to the uber-bullish count to 2000. This pattern becomes my primary with a strong move through the 1866ES region, which should propel us just beyond the 1900 region. At that point, I do expect a pullback to the 1866-1876ES region, but any pullbacks should maintain support over 1860ES, which then has me targeting the 2000 region before a larger-degree correction takes place, likely bringing us back to the 1750-1825 region, which is where we are right now. It would be from this region, after the pullback from the 2000 region, that we embark upon a rally toward the 2500 region. So, a breakout offers a lot of swing-trade opportunity over the next two years, but I am still suggesting you await confirmation.

Again, it would take a strong move through the 1866ES region to confirm, for me, the longer-term bullish potential in this market, with targets exceeding 2500 over the next several years. However, as I have said over and over, this is not my primary perspective at this time, and the market will have to clearly prove this to me as discussed. If the market were to break down below 1817ES, I believe it will likely fail to find support at its next support level of 1809ES, thereby invalidating the immediate uber-bullish count, and potentially take us much lower.

So, for those looking to get long in the index for a bigger swing trade of 100-plus points, I must caution you that we are at a major inflection point at this time, And until the market can prove its bigger bullish intent with a very strong move over 1866ES, we will likely see the 1700s, which may present you with an opportunity to get long again.

However, as I have been saying, if the market cannot maintain support in the 1740 region, assuming we do see downside follow through over the next month, then we are looking at much lower levels to be seen, as it opens the door to the 1500-1600 region.

While I know that this analysis may seem complex to some, and provides multiple scenario possibilities, this is what occurs at major market inflection points. This is why I wanted to present you with the specificity outlined above regarding the possibilities, so that when the market does follow through with one of the patterns, you will be able to recognize it and trade it accordingly.

Remember, the market never provides absolutes, and anyone looking for absolutes in a non-linear environment will soon be separated from their money. Rather, it is probabilities that we attempt to trade, and we look for confirmation of one of the higher-probability alternatives to guide us along the way. And at this time, I think there is greater probability of seeing bigger downside than upside, but have provided you with the manner in which to identify if my inclinations are wrong.







http://www.marketwatch.com/story/the-market-is-at-a-major-inflection-point-2014-01-21

George.

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