Elliott Wave 4 Rally Appears Confirmed – with Targets

Dec 8, 2008: 10:42 AM CST

As expected, it looks like the current price action as of Monday morning is confirming the large-scale Elliott Wave Count that we have freshly entered a corrective Wave 4 up-swing in the market, which could continue into the end of the year.  Let’s take a look at the large-scale count and see which price targets the market might achieve, using Fibonacci.

S&P Weekly Chart:

As I’ve been discussing and following the Elliott Count, the market appears to be confirming the structure of a terminal 3rd wave which ended in mid-November, and now a corrective “ABC” Wave 4 pattern may be the current Elliott structure underway right now.

Wave 1 took us to 1,250 while Wave 2 corrected to the 1,400 area.  Wave 3 was particularly violent, dropping price almost 50% from 1,430 to 750 in the span of six months (so much has happened in that period).

We have a positive momentum divergence forming on the terminal fractal 5th wave, ending the 3rd Wave structure.

Where might the Fourth Wave take us?  I’ve overlaid two Fibonacci retracement grids, one from the market top at 1,550 to the market bottom (so far) at 750.  We get the following Fibonacci retracements:

50%:  1,155
38%:  1,057

Those alone could be possible targets, but I also confirmed a possible simple Fibonacci confluence using the entire Wave 3 impulse to see how much Wave 4 would retrace of the 3rd Wave.  I drew these in orange:

38%:  1,001
50%:  1,083
62%:  1,164

The two major confluence areas of these retracements are the following:

1,160 (a larger, more aggressive target)
1,065 (a more realistic possible confluence target)

I’ve drawn the possible 4th wave I envision – which may or may not happen – to terminate near the 1,065 area.  We’ll take it day by day to see how price behaves with this price target in mind.

Let’s drop down to the daily chart to zoom inside the most recent murderous (to the bulls) larger scale Wave 3.

S&P Daily Elliott:

Again, we see the positive momentum divergence forming on the terminal 5th wave.  Price – in my opinion – is likely to move through the daily EMAs before forming a “B” Wave down.

Remember that the Elliott Wave 4 structure calls for an “ABC” or three-wave corrective pattern (A is up, B is down, C is back up).  I suppose we’re in the Corrective “A” Wave now.  Note also the upward break (so far) in the down-sloping trendline (not drawn) from the November and December price highs – that’s a bullish confirmation as well.

Ben at the Financial Ninja wrote an excellent post entitled “Rally… or Just a Bounce?” on the current S&P structure that adds detail to the analysis.

Take advantage of the two-month trial period to Market Club as their end-of-year gift to you.

Corey Rosenbloom
Afraid to Trade.com

5 Comments

5 Responses to “Elliott Wave 4 Rally Appears Confirmed – with Targets”

  1. Andrew Stanton Says:

    On the weekly chart wave 2 was a sharp correction so the odds favor a flat or triangle wave 4 that stays within the price range of the prior fourth wave of one lower degree.

  2. Nepharis Says:

    Very nice analysis. I was just looking at this as well, and came to basically the same layout of waves. The confluence of the retracement levels are quite interesting.
    Thanks!

  3. Corey Rosenbloom Says:

    Andrew,

    And in this environment, it would be reasonable to expect upside price action to be muted. Generally, funds have seen any rally as a fresh opportunity to sell (into supposed strength) which would create a sort of tug-of-war condition expected in triangle formations (consolidations/pauses).

    We’re more likely going up (in the short term) than down, but just how far – that is the question. I stopped just short (in the post) of reminding readers what occurs after the terminus of a 4th wave….

  4. Corey Rosenbloom Says:

    Nepharis,

    It’s strange how everything seems to be in synch in such a volatile environment – almost like there’s structure to the chaos after all!

    The more I work with Fibonacci, the more I find meaningful confluence levels as being more important than singular retracement levels. It’s almost like it gives additional weight or confidence.

    Let’s see how it plays out!

  5. Anonymous Says:

    HI Corey !!
    Excellent Explanation !!! Could not be more lucid.. I am new to elliot wave theory . Could you please explain what kind of corrective wave was wave 2 ?Zig zag flat , triangle ? I am having a hard time to identify