Wednesday, October 4, 2017

SPX, INDU, RUT: To Blow-Off, or Not to Blow-Off? That is the Question.

Last update noted that it appeared the rally still had farther to run, and that SPX was inching its way toward its upside target zone.  Yesterday, that target zone was captured.

So now the question becomes "is it close to being finished?"  And the answer is:  It looks like it still has some fourth and fifth wave unwinds yet to do, so it's probably not entirely over yet.  And given the structure of the entire wave, there is a genuine possibility of an extended fifth wave, so bears are going to want to be careful until the market declares that extended fifth wave potential is off the table.

RUT also allows for a similar possibility:

And while it's a bit harder to find such a possibility in INDU, I have to assume it's still present here, since it's present on RUT and SPX, and even on BKX.

INDU has come very close to the perfect "perfect world" target of 22699, and here again, it does appear that there are probably some fourth and fifth waves left to unwind, so that target is quite do-able, and possibly even too conservative.

In conclusion, it appears likely that the rally has at least a little farther to run, due to the fact that it seems to still have a few fourth and fifth waves to unwind.  We also have to be aware of the potential for an extended fifth, which, outside of technical analysis, is also known as a "blow-off top."  Thus the best thing to do for the moment is await an impulsive decline before getting too bearish.  There are times I can advocate front-running a turn, but it's difficult to do so now, with the market in this position.  Trade safe.

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