On Tuesday night, I said we needed to maintain support over the 1394ES level in order to still view the upside as a reasonable possibility. On Wednesday we rallied off the overnight lows that held support over 1394. But the move up was an ugly pattern which seems to be best counted in waves of 3, so that we do not have to force an even more ugly count. This leads me to the conclusion that it is a possible leading diagonal. And, I have mentioned many times in the past how much I like to rely upon leading diagonals for trading purposes, but this is what the market has been giving us for 1st waves all too often.
Therefore, IF this is a leading diagonal, then either wave 2 has already completed in a very shallow manner, or we will see a much deeper wave 2, which is more typical of leading diagonals. But, if you remember the larger wave count I posted on the 60 minute chart today, the expectation was that wave 1 of wave iii was going to target the .618 extension at the 1406ES level, which is exactly what we seem to have gotten today. Therefore, based upon how we move up tomorrow, assuming we do see upside follow through, we will be targeting the 1412(1.00 extension) or 1416 (1.236 extension) levels for wave 3 of iii.
My preference would be the 1416 level, which would then have us targeting the 1423 region for the top of wave 3. This entire pattern would then likely be taking us up as high as the 1431 target, assuming the 5th wave does not truncate at the 1423 level and provide us with a double top. But, I am getting a bit ahead of myself here, as we will want to see follow through to the upside Thursday to confirm the pattern.
Originally published on ElliottWaveTrader.net.
