Ok … so where the hell are we in this whole correction thing? One of the reasons why I always try and see where we are in terms of wave structure is to try and help me get some perspective … emotion affects every trader, and by stepping back and trying to determine where the wave structure tells me we are at, I hopefully can make some good trading decisions.
Let’s look at the most important index, the S&P 500 … I will start by stating that my common thought through this whole post-Oct correction was that the correction was coming off of an important all-time high in the market, and therefore, it made sense to expect the correction to be multi-legs/complex rather than just a simple ABC correction.
I think that odds are in that the high earlier this year is the highest level we see for a couple of years (minimum) so I want to make sure that I that I give this correction enough respect to not expect the norm.
Having made that warning, here are my charts …
S&P 500 Index Futures Contract (ES) – 240 Minute Chart #1
I call this my bullish or “Bull Tard” scenario. No disrespect, but so many people/perma-bulls are calling for an Xmas rally that I have to think that would be too easy for Mother Market to give all of us. Besides, I like to see completed wave structures before I get too confident about a reversal in price direction.
What can I say about the above chart? Well, I can definitely see a bigger, more complex ABC structure building. And if I look at the timing extension target window, an argument could be made that the minor C-wave of the bigger C-wave is right at the logical time window extension target … i.e., the minor C-wave is equal in time to 1.618x the minor A-wave (exact target is the 2am – 6am eastern time zone candle).
However, when I look at the bigger C-wave, I am not seeing what I typically would expect to see in terms of price structure. C-waves are typically 3-wave structures and a quick glance at the above bigger C-Wave only reveals what appears to be 2 waves so far.
If I’m wrong, then price should bounce from about today’s low, and take out the SLOT resistance zone on the way to retest the all-time high. If I’m right, then after a minor counter-trend bounce, price will push down once last time to complete the minor C-wave and the bigger C-wave.
Also, C-waves typically terminate closer to the 1.618x extension price target and not right at the 1.272x target level at the chart above suggests (especially for larger more complex price structures).
Here is what I believe is a more realistic road map for the ES contract …
S&P 500 Index Futures Contract (ES) – 240 Minute Chart #2
Ok, so let me tell you why I think the above chart makes more sense … first, I want to see a 3-wave structure for the bigger C-wave and for the smaller C-wave of that bigger C-wave. The above chart gives me that.
In terms of a timing window … when I look at the final bigger C-wave, I would expect the smaller C-wave to be at least 1.618x (and possibly 2.0x) the time length of the smaller A-wave. The above chart paints a 1.618x and that 2.0x time target window.
The 1.618x paints right at the 6pm-10pm window on December 27th while the 2.0x is right at the Jan 3rd 2am-6am time slot. Time windows are approximations but they often paint pivot points pretty close to bang on.
If the ES contract is to complete a 3-wave structure, I think there is a good chance that we will get down to the 2392.25 level. Does that level make sense at all when you step back and look at the ES from a bigger time frame?
S&P 500 Index Futures Contract (ES) – Daily Chart #1
As you can see from the above daily chart, my read of the daily price
That means that the ES should make it back probably to the 61.8% level or 2240 … yikes!! That is about 11% lower than today’s close.
Typically, the first push lower will find support just outside the SLOT support zone (i.e., just before the 50% level at 2375). Here is how I would expect price to complete the correction into the SLOT.
S&P 500 Index Futures Contract (ES) – Daily Chart #2
I’ve drawn the above waves using the 2392 and Jan 3rd target for the end to the bigger A-Wave (i.e., the corrective wave we are getting close to finishing here now).
The corrective bounce should find resistance around the 2737 level (61.8%) and then complete down into bigger support at around that 2240 level.
This is all big sky thinking, and we have to see how this first wave down completes before we can start thinking about an even bigger support level. Nonetheless, I think that the October high in the ES is a very important level that will stand as the high for quite some time. The correction off of that high has to be complex and
Bottom Line – I think that we are close to support for the first leg of the large and complex corrective wave off of all-time highs. Unfortunately, I think the low from today was just the end of the second wave in the last leg into support for that bigger first wave lower.
We are likely to see some type of bounce, and hope for an Xmas rally before all hope is washed out with a flush into around that January 3rd time window/2392 target level.
Cheers … Leaf_West