October 13th update

S&P

We are certainly at an interesting juncture.  If my minuette degree waves are correct, then we completed five waves up around noon on 10/12 for the entire rally going back to the 10/4 low. 

The question now is, what from here?  Elliott Wave theory says that five waves defines the one larger trend.  The problem is that it also terminates the one larger trend.  Below I show two possible Elliott Wave scenarios for this market.
The first scenario suggests that the 10/4 low was an intermediate degree wave termination, meaning that this rally is only an A-wave of an A-B-C rally.

The second scenario suggests that intermediate wave (1) actually terminated last month, around 9/22.  We saw another low on 10/4.  The A-B-C correction in this scenario, where the B-wave makes a new low is known as an expanded flat.  It's actually fairly common in fourth waves.

 

Below I show how the second scenario could look.  The fact that the proposed minute degree ((a)) and ((c)) wave are related by a fibonacci 161.8% lends extra weight to this count.  Normally, you could simply go to a lower time frame and count three or five waves to determine whether a wave is a B-wave or a fifth wave.  In this case, however, the fifth wave was a diagonal, which develops in corrective mode.  That makes determining the actual endpoint much more difficult.

One of my main problems with the above scenario, however, is that minute wave ((v)) (not shown) of minor wave 3 is truncated.  Truncated waves are very, very rare.  If this turns out to be correct, it will be the first truncated fifth I have encountered, and on the daily time frame no less.

In summary, we are due for a correction.  At a minimum, we are due to correct the five waves of minuette degree going back to 10/4.    Alternatively, the correction will be five waves down of minuette degree and begin the next leg down taking out the 10/4 lows.
To know which is the case, we will watch price action closely.  A B-wave unfolding will be three waves down or some variation, with the component A-wave and C-wave likely showing a fibonacci relationship.  The 50% and 61.8% retracement area of the prior five wave advance are also good spots to watch for momentum to stall on the hourly time frame. 

Oil

This post is already getting lengthy, but I have to talk about oil, because I got short today.

I had been pretty sure for the last couple of days that the advance was over, but I really wanted to get a breach of the prior fourth wave.  In this case, I was satisfied with a move below the fourth wave of subminuette degree, since minuette degree wave (v) formed an ending diagonal pattern, which is terminal.  A breach of the fourth wave of the diagonal, therefore meant the diagonal had ended, and the diagonal itself meant the one larger degree (or minute degree wave) had ended.
My trigger entry point was at 32.50 on the USO, bearish via a VERTICAL USO 32/29 PUT spread. 
We traded back up to the 61.8% retracement of the entire minuette degree decline, but turned back down into the close.  I will call no-joy on any move above this week's highs, or 33.50 on the USO.