Let’s take a quick look inside the recent “Wave 5″ Downswing that began in early January 2009 and look at two majorly important Fibonacci Confluence Zones that have developed inside that structure.

(Click for larger chart view)

What we’re seeing is an exact Fibonacci Confluence at the 770 area on the S&P 500, though it’s already slightly been broken to the upside (as of this writing, we’re at 773), but it could provide at least initial resistance.

Structurally, we’re perahps in Wave 4 of (5) and the expectation is to find overhead resistance and begin a new swing down – there’s of course no guarantee that will happen though, but it seems to be the widely accepted viewpoint.

A Negative Momentum Divergence, namely the potential for the “Three Push” Reversal pattern, has formed under this recent sharp price advance. Notice the positive divergence in early March that preceded this recent rally.

If we break above the 770 level, then the next Fibonacci Confluence will come in at the 800 level, which is also prior support from supposed fractal Wave 1 Down.  For the Elliott Structure to be valid, we would expect price (in fractal 4) to remain under the price territory of Wave 1 (800) so let’s see if that’s the case.  If we break above 800, then the phrase “All Bets Are Off” comes into play which could trigger a decent short-covering (stop-losses being placed above 800) rally.

Feel free also to view Adam Hewison’s video on whether we’re having a  “Bear Market Rally… or Serious Reversal.”

If anything, this view gives you a little more information on the S&P 500 hourly chart.

Corey Rosenbloom
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade
Register (free) for the Afraid to Trade.com Blog to stay updated