For weeks, the broader U.S. stock market has been going sideways in what seems to be a triangle pattern. And the difficulty with triangle patterns is being able to pinpoint when they have been completed, especially when the structure within the triangle is not typically proportional. This is the challenge we have been facing for the past several months.
Since the market topped in January in wave (3) of wave v of 3, we have been mired in a wave (4) corrective structure. Since we have not seen a clear c-wave down to provide strong evidence of completion of a wave (4) correction, I have been tracking two potential triangle patterns, one of which has already been completed, as presented in yellow on my 60-minute chart.
However, I cannot say that the proportions within that yellow count are highly conclusive of a completed triangle. But it has been something I have to track, since it is still likely this market wants to head to 3,000 points or higher in the S&P 500 Index, and usually does so with the fewest people aboard for its 3rd wave in that final 5th wave.
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Until now, I have preferred the triangle I have presented in purple. It would still need an e-wave lower toward 2,600 on the S&P 500
However, if this market is able to break out over 2,753 sooner rather than later, I will be forced to adopt that bottom in yellow wave (4), especially if we complete 5 waves up toward the yellow wave 1 on the 60-minute chart. We should then see a wave 2 pullback to test the top of the breakout of the triangle, which should set us up for wave 3 of (iii) rally, pointing up toward the 2,880 region later this summer.
But before the bulls count their chickens, the bears can still surprise them early this week if the market falls. Should that occur, it would project us to break down below the lows struck this past week, on our way to completing the (c) wave of e-wave of the larger wave (4) triangle. Moreover, as long as the market remains below the 2,742-2,753 resistance (with 2,753 being the a=c point off last week’s 2,676 low), then the market retains the potential to drop toward the 2,600-2,650 region on the SPX for the e-wave of the triangle.
While the smaller-degree structures have clearly not solidified the perspective as to when wave (5) to 3,000-plus will begin (or if it has already), it is still likely that the market will be taking us toward that 3,000 region before we see the 20%-30% correction I think will happen in 2019. The only question with which we are grappling now is if wave (4) has ended just yet. But the probabilities suggest that this bull market is not over.
See charts illustrating the wave counts on the S&P 500.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live trading room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.