Thursday, June 28, 2012

SPX Update: Short-Term Picture Clarifying Again

Yesterday, I had a lot of doubt, and a number of questions, about where we were in the short-term picture, and the good news is that most of them have now been answered. The bad news is that yesterday I ended up leaning slightly toward the view that the market would head down for the short-term, and that turned out to be a complete miss.

It now appears that the original outlook (which projected a low beneath 1310 and then a rally to 1335) published on Friday and Monday was correct, and that Minute wave i bottomed at 1309.

What appeared yesterday to be a small fourth wave turned out to have more legs than was readily apparent, and the SPX rallied 11 points and change, which, judging by the bear reaction, was the largest one day rally in history.  Honestly, this is the type of sentiment one wants to see near a second wave peak.

I remain of the view that Minor wave (ii) peaked at 1363, largely because the 61.8% retracement it obtained is just about perfect for a second wave. However, until the market trades beneath 1306, the option of another a-b-c rally remains on the table. Accordingly, I've prepared a short-term chart with some levels to watch in case my outlook is wrong and there's another large a-b-c rally coming.

The question on everyone's mind is whether the current Minute wave ii rally is complete, and the answer is a resounding "probably."  It's a bit of a messy chart, but the rally has reached a number of resistance levels, and appears to count as a complete abc structure.  Trade beneath 1320 would add confidence to this view.

I worked out a count on the one-minute chart, using the Dow Jones Industrials (INDU) for form, and while it counts differently than SPX, it also appears reasonably likely the structure is complete.  A slightly higher high would be within the margin of error, but again, the key levels on the first chart should not be materially exceeded or this will have to be re-examined.

Finally, a big picture SPX chart which shows some of the key long-term support and resistance levels.  Note the "alt: (y)" label,, which shows the approximate area the market would be expected to top if the more bullish double-zigzag unfolds.  Again, I am handicapping that as low-probability, but I'm not arrogant enough to completely ignore the possibility. 

In conclusion, the bounce from 1309 to 1334 again fits the pattern at this stage, and unless the market throws a curveball here, we should soon see a strong decline (which breaks the 1266 low) begin in the very near future.  Trade safe. 

Reprinted by permission; Copyright 2012, Minyanville Media Inc.

1 comment:

  1. as the economy and market worsen, demand for safe assets outstrips supply