OK, now that we’ve had 2 days of trading the pullback that I’ve been waiting for, has anyone’s opinion changed regarding their favored wave count.  Note:  The transports broke below what would be intermediate wave (1) high today as shown on the SPX, eliminating this count for the Transports.  Even if you voted Saturday, please vote again.  The Chart has been updated.

After reading this post, then please vote:

I’m going to begin this weekend’s report with my Elliott Wave analysis of the major indexes.  I am going to walk through 3 possible EW counts.  The primary count is the one I’ve been showing on the SPX and I’ll walk through it first. Then, I’ll show 2 possible alternative counts and explain the critical levels to watch to discern between these counts.  The first alternative that I’ll discuss is shown on the RUT portion of the index chart below.  This alternative is ultimately more bullish than the primary count in the intermediate term as it has only minor wave {blue} 1 complete of intermediate wave (3). I’ll explain the implications below.  And, the 2nd alternative is the bearish count that Cycle 2 is still ongoing with primary wave [B] just completed. It is shown on the Transports chart.The Primary Count: Under this count, intermediate {red} wave (3) has concluded or is about to.  Therefore, the next leg for this count is intermediate wave (4).   Elliott Wave rules forbid this wave to breach the top of intermediate wave (1).  Thus, it must not retrace below 1292.66 to remain valid.  If the SPX does begin to correct, as I suggest it will, then any breach of 1292.66 will mean that this count is invalid and one of the lower 2 counts is likely the correct one.  If this count is correct, then a retracement to 1300-1336 will transpire.  This correction will then be followed by a final push up to complete primary wave [1] of Cycle 3 around 1440.

Alternative Count 1: The first alternative count is a bit complicated in that it requires me to reclassify my bigger picture view of the markets.  The bull market run off the March 2009 low to the April 2011 highs would need to be viewed as Primary Wave [1] of Super Cycle 3 rather than Cycle 1 of Super Cycle 5.  But, that’s not important for the moment.  What is important about this count is that it allows for a deeper correction than the primary count does.  This count, shown on the RUT chart above, holds that the rally that began in late November has been minor wave {blue} 1 of intermediate wave {red} 3 of Primary wave {black} [1].  The key for the immediate term is the degree of the pullback allowed under this count.  Rather than being limited by the intermediate wave (1) high, it is limited by the intermediate wave (2) low (this would be 1158 for the SPX).  As you can see for the RUT, this would work very well with the likely channel and the typical 50-61.8% retracement expected for a minor wave {blue} 2 retracement.  So, should the RUT break below 769 this week, then it CANNOT be on the primary count and it should be expected to find the lower channel trend line probably around 750.  This pullback will then provide one of the best buying opportunities of our lifetimes as the next leg up will be minor wave {blue} 3 of intermediate wave {red} 3 of primary wave {black} 3 to never before seen heights!

Alternative Count 2 – Bearish Count: I’m showing the bearish count on the Transports.  Under this count, the bear market that began in April 2011 still has one more leg down to complete.  The three waves up off the October 2011 lows would only be primary wave [B] and a 5 wave down move is left to complete wave [C] and Cycle 2.  I would expect wave [C] to create a double bottom if this were to indeed play out.  That double bottom could either be the October 2011 or November 2011 (slightly higher) lows.  For the major indexes, I would look for a retest of what is labeled their intermediate {red} wave (2) lows, for the transports and (indexes that didn’t make a new high during the rally- i.e the RUT) probably the lower October low will be the target.