Monday, April 17, 2017

SPX and RUT: Don't Count Your Chickens Until the Cows Come Home to Roost

Well, I'm not thrilled with this market currently.  The issue I've had since the beginning remains, in the form of the 2322 low in SPX, which could be interpreted as a B-wave (meaning it would fail).  I have given the benefit of the doubt to that low in light of the prior strong uptrend, but if SPX sustains trade beneath that level, then we'll have to at least consider the potential that the wave we've seen to this point could be a very bearish nest of 1's and 2's.  So, what I've been saying for a while remains true:  All bull bets have to be off below that level.

If SPX holds that zone, then it's a moot point, of course.  But we're close enough to it now that it needs to be kept firmly in mind.

Below, I've used a more basic classic technical analysis chart of the Russell 2000 (RUT) to help illustrate the point:

Near-term, SPX cracked the 2337 level, which wasn't my ideal scenario, but (as noted on Wednesday) this in itself doesn't entirely kill the bull case... yet.  It bothers me a bit that this pattern doesn't really work as an ending diagonal in terms of the trend lines, but it does work in terms of the abc structures of the declines.  Of course, if those are bearish nests of first and second waves instead of abc's, then bulls could encounter serious trouble.  The 2322 zone continues to be the first dividing line.

Bigger picture, given the current wave structure, an immediate and sustained breakdown could prove the "or Bull 4" label placement to be too conservative (in other words, SPX could head lower than that zone).

In conclusion, bulls can maintain hope for the moment, but a sustained breakdown at 2322 would have to be viewed as, potentially, a very bearish development.  Trade safe.

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