Wednesday, November 12, 2014

SPX and INDU: Preferred Target Capture Results in Small Impulsive Decline

On Tuesday, SPX finally captured the preferred target zone of 2035-42, and formed a small impulsive decline down from 2041.  This suggests there should be at least one more leg down in store.

If all of wave red (5) of blue (1) has completed, then we may finally see a bit deeper correction.  At present, it also remains possible that red (5) will subdivide, shown below in gray -- this seems modestly less likely, but cannot yet be ruled out.

On the near-term chart, the targets which can be drawn from the micro structure (so far) are noted:

INDU also shows an apparent impulsive decline:

There's also an outside shot that the rally has completed a larger 5th wave, and will correct much deeper than shown, however, as yet, we have nothing to draw from to support that potential.  The first step would be a larger impulsive decline -- so until that forms, we're only going to keep that option in the back of our heads.

In conclusion, at the very least, one more small leg down is expected.  Ideally, I'd like to see a trip toward the 2001-2010 zone, but the market reserves the right to create a subdividing fifth wave as noted.  Regarding the intermediate term, there are two options open:

1.  The market is completing wave (1) of a much larger upleg.  This would make any pending decline wave (2) down, and lead to a strong rally in wave (3).
2.  The market is completing a fifth wave at higher degree.  This would result in a much deeper correction.

The best we can do at this stage is watch for a larger impulsive decline as the first warning that option 2 may be in play.  If that occurs, then we can determine odds on whether the market is embarking on something more than a second wave correction.  Trade safe.

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