The SPX has been on a tear for most of 2013.
But when looking at the Elliot Wave counts from the October 2012 lows, a 10%+ correction may be pending. I am not going to go into full details about how Elliott Wave counts work, but I will explain the basics and why I believe this correction is imminent.
Elliott Wave counting is made up of five waves. Each major wave will be made up of five smaller waves. So wave (1) 1-2-3-4-5. Minor reversal for wave (2) and then 1-2-3-4-5 wave (3). Minor reversal wave (4) and then 1-2-3-4-5 to complete the final 5th wave.
WHERE WE ARE NOW
When looking at the wave count from the 10/2011 lows, it appears that we are in the final stages or wave 5 of a major wave (3). A typical pull back for the next wave 4 that is pending, is either a 23% retrace, once this 5th wave ends. That would bring the SPX down to the 1610 area, which is about 10% lower from these levels. Another typical landing spot for this wave 4 is the previous wave 4 (black 4) which is at 1540.
So once this wave 5 of (3) completes, we should see a wave (4) down, that could have the SPX trading 10% or more to the downside. Some areas that I am watching for this wave 5 to end, is between the 1780-1820 zones. They may try and keep a bid under the indexes until Thanksgiving is behind us-which is about three weeks away.
Is Santa not coming this year? According to the wave count, maybe not, but we will find out soon enough. Maybe they will just extend this wave 5 into next year? Tough call.
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