Even though we caught the S&P 500 Index’s rally from 1,800 to 2,940 points, once we moved through the 2,900 region, we strongly warned our subscribers that we were potentially approaching the top of wave 3 off the 2009 lows.

The ramifications for completing wave 3 suggests that we will likely see a 30% correction, pointing down to around 2,200. So for those who have been following our analysis, this recent action should be of no surprise to you. And the next few weeks will tell us if we will be targeting the 2,200 region sooner rather than later.

If you had come to work Monday and tuned into the financial news networks or read the articles published that day, there was an air of certainty regarding an imminent market crash. Many were even certain that this past Wednesday was going to be a massively red day due to the next phase of quantitative tightening.

Well, we bottomed just as the media was hyping a crash, and the market rallied 50-plus points the day we had quantitative tightening. The common expectations are rarely what actually occurs.

While most of the market turned extremely bearish on Monday, the S&P 500

SPX, +0.15%

 struck our 2,600 region target (as it bottomed at 2,603), and began a strong rally this past week. And our primary expectation maintains that this rally has further to run.

With the market bottoming at 2,603 in what we have primarily counted as an a-wave of wave 4, I expect that the market can rally back over the 2,800 level in the coming weeks. But I also think that we will have a b-wave pullback complete in the coming week before that next rally begins. Our target for this pullback is quite large, as it resides between 2,640 and 2,685, but as the c-wave drop takes hold, we will be able to pinpoint the ideal target for this pullback in much more narrow terms.

But it means that as long as the 2,640 region holds as support, I am looking for a rally over 2,800 on the SPX in the coming weeks. So for those who stopped out of their long positions on the break of 2,880, the market will give you an opportunity to re-enter on this pullback.

But the big question is still whether the market can push as high as the 3,011-3,050 region before we begin to drop down to 2200, or if we will likely top out below 2,910 before we begin that drop. As it stands now, I am leaning toward not being able to move through that 2,910 region.

As the next rally begins in the coming week or two, we will be following it up using our Fibonacci Pinball method. As the rally takes shape, we will continually move up support. Should the market break any support level through the Fibonacci Pinball progression with an impulsive 5-wave structure, that will be a major indication that we have begun that drop to 2,200 sooner rather than later. So if you are going to ride a rally higher, you will need to remain on high alert for any break of Fibonacci Pinball support to suggest that we will top below 2,910 and begin a decline toward 2,200 sooner rather than later.

See detailed charts that illustrate the wave counts on the S&P 500.

Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live Trading Room featuring intraday market analysis on U.S. indices, stocks, precious metals, energy, forex, and more, along with an interactive member-analyst forum and detailed library of Elliott Wave education.

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