Friday, January 24, 2014

Bears Make Some Noise

Bears made some noise yesterday, as the market opened with a big gap down.  Yes, you read that right (I'm picturing bulls pulling out their dictionaries and looking up the word "down"). 

Chart-wise, there are a few interesting tests underway.  First off, Wednesday's bearish sell trigger became active in the S&P 500 (SPX) when price crossed below 1832, and that trigger break targets 1817.  The alternate count is that 1820 marks the bottom of a corrective c-wave, but that appears lower probability.  Bears will want to be cautious if the market can convincingly reclaim the black (2)/(4) trend line on the chart below, and very cautious if 1839-40 is reclaimed.

In the bigger picture, price has reached an intermediate trend line, and I think the next few sessions will be extremely telling.  The fact is, while it's fun to play at getting far ahead of the market and making grand predictions about the upcoming months, it's simply too early to make much of the wave structure at intermediate degree yet -- so I'm going to take this one day at a time for the moment.  As the structure develops, we'll be able to draw more concrete conclusions about the market's intentions beyond the next session or two, and the chart which follows this will show why bears will want to stay nimble here.

The chart below shows that we may now be in the c-wave of an expanded flat correction.  This was an option I discussed last week, and it's completely viable as a nasty whipsaw move.  The expanded flat would break 1815, then find support shortly thereafter.  The textbook target for an expanded flat c-wave is 1795 +/-, so watch that zone if 1810-15 fails.  

In conclusion, SPX tested trend support yesterday, and while it held on the first test, the wave structure (and Wednesday's trade trigger) suggests it will break -- so near-term, I expect further downside to capture the target zone.  Beyond that, bears still have their work cut out for them at the next key noted levels, while to the upside, bulls want to try and reclaim 1828 and 1840.  We'll examine the intermediate picture in more detail in the upcoming updates.  Trade safe.

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