Hi fellow traders. The $SPX Bounce from the 8/21 lows is impulsive as the title suggests and does display the usual characteristic traits of an Elliott Wave impulse. Looking back previously before this 8/21 date, the stock index is within an obvious uptrend in multiple degrees. For purpose of this particular blog we are mainly focused upon this particular time frame in four hours up from that aforementioned 8/21 low. The point is to try to tell and show what to look for ideally happening in the near term to help get a shorter term trader in position to capitalize on the pending and conditional dip that can be seen correcting the uptrend cycle from the 8/21 lows. That is to identify the area the wave (4) pullback can reach. Longer term traders and investors should be able to stand back and enjoy the benefit on being long in the uptrend.
That being said, the dip to 2566 from the 2597 highs of 11/7 , coupled with other correlated instruments was strong enough in our system to suggest it was correcting the cycle from the 8/21 wave (2) lows. The one condition mentioned above is there is an ongoing bounce in wave X shown in the graphic chart below that currently shows an equal legs extension area at 2594 where it may or not reach or as well it can even exceed. What the bounce will need to do is fail below the 11/7 highs at 2597 and turn lower for another swing below 2566 otherwise there is a risk that the wave (3) is extending higher. This is very common for an Elliott Wave three of any degree to extend with the trend and is just another reason a trader should not trade into a correction against the trend. If the dip materializes as proposed then great, buy into it and join the uptrend on the right side of the market.
Finally and back to what the point here is identifying the area the wave (4) dip can reach is as per the following. After the proposed wave X ends and it breaks below 2566 again, a measurement from the wave (3) highs of 11/7 down to the 2566 lows then up to the wave X highs will give the equal legs to 1.236 extension area for the dip in wave Y of (4). The Fibonacci extension will usually be more precise as compared to the usual Fibonacci retracement area in a wave four. As it stands now while below the 11/7 highs a typical wave four will retrace .236 to .382 of a wave three. That area comes in at the 2554-2528 region. You may also see these guidelines of what to look for in an Elliott Wave four further described in the article here.
Lewis Jones of the ElliottWave-Forecast.com Team