So let's start with the very short term and work outwards from there:
Very short term alternate #1
OR
Very short term alternate #2
On the very short term, alternate #1 has the ES forming a flat since the 1624.75 low of last Wednesday morning, with the "a" and "b" legs complete and the "c" leg just starting. The "c" leg in a flat is a 5 wave impulse and should show some strength since it's the 3rd leg of the structure. Alternate #2 posits a triple zig-zag correction off that Wednesday low that completed at the 1645.00 high overnight Thursday-Friday, with the first impulse down of the next down wave occurring into Friday's lows. The implications for near term action are entirely opposite - alternate #1 portends a rally almost immediately, alternate #2 signals a sell-off after a brief and relatively shallow upside correction. At this point alternate #1 has to be favored - the background news leading into Wednesday's lows was the situation in Syria, and the weekend news provides a respite to the potential danger there - so it's likely that the ES will rally strongly over the next couple of days or so. I know, I know, EW purists say don't pay attention to the news as mass sentiment drives the market and then the news. To me that's a chicken and egg argument. The news is part of the fabric from which the market is woven, so ignoring it is deliberately blinding. I think the better approach is to realize that the news is only one component to be considered when analyzing market possibilities.
Backing out to a wider view the two most probable alternates are as follows:
Short term alternate #1
OR
Short term alternate #2
The two most likely EW counts for the pattern since the Aug 5 top both call for a rally in the next few days or so. The practical short term difference will be the depth of retrace that the rally generates.
In short term alternate #1 a Minor W1 (red) down completed at the 1631.50 low of Aug 21. That was followed by a simple zig-zag retrace for Minor W2 into a high of 1667.50 on Aug 26. Since then Minute W1 (green) of Minor W3 is in place with Minute W2 in progress and forming a 3-3-5 flat. Possible target for Minute W2 is the .618 retrace of Minute W1 at 1651.25 and should occur in the next day or two.
In short term alternate #2 Minor W1 is not complete until the 1624.75 low of Aug 28 with Minor W2 in progress since that time. As in alternate #1 the corrective structure since the Aug 28 low is a flat, but the wave degree is one level higher and is a retrace of the entire move off the Aug 5 high, so it should travel a bit farther and last a bit longer than in alternate #1. Possible targets for Minor W2 in this scenario are at the .50 retrace of Minor W1 at 1665.00 or at the .618 retrace of Minor W1 at 1674.50.
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On the Intermediate Term it appears fairly certain that a bear market will be in progress over the coming weeks, so there's not a lot to talk about there. However, the long term presents some drastically different outlooks:
Long term alternate #1
OR
Long term alternate #2
Long term alternate #1 has equities in a major long term bull market starting at the Mar '09 lows with the first cycle degree wave of that move only about half complete at this point. So it forecasts much, much higher equity prices going forward. Long term alternate #2 views the action since the Mar '09 lows as a rally in a long term bear market with serious trouble on the horizon. It should be noted that the 1745 target for the X wave high in alternate #2 may not be achieved, it is quite possible to count that X wave as complete at the 1705 high of Aug 5.
Which of these long term alternates is correct is yet to be determined, and probably won't be known for some time yet. Being the long term bear that I am, I favor alternate #2, but as usual the market will speak for itself in due time.
