Friday, November 3, 2017

SPX and INDU: Market Pulls a Sneaky

First of all, I want to warn against complacency here, because while this outlook is bullish, there are enough waves in place for a complete rally -- so the bull/bear scenario hinges on a wave that I'm interpreting as a b-wave.  If it's not a b-wave, then we'll break yesterday's low prior to exceeding the all time high, and hence 2566 is the "all bull bets are off" level.

That said, I'm favoring the bulls by a 60/40 margin here, because the all-time high looks very much like a b-wave, and the pattern fit my expected retrace for that first wave.  On October 30, I published the chart below, which showed SPX dropping to the high 2560's and bouncing before heading back down to the low 2560's.  That's exactly what happened, except the correction appears to have been an expanded flat (where the b-wave bounce exceeds the prior high), so we made a new ATH in the middle, which is always a possibility in a b-wave.  With the exception of that b-wave high, the projected correction played out quite well:

So, not only does the ATH look like a b-wave, but the total correction from 10/30 played out essentially textbook in terms of retrace levels.  This is why I'm favoring the bulls, with the bear count as the alternate -- as shown below:

INDU also looks like bulls continue to deserve the edge.  There is a chance we'll tack on another down/up sequence for an even more complex flat (though I suspect not -- I think we've done enough churning and are ready for a clean breakout).  But in the event we exceed the ATH in SPX and then drop like a rock (like the other day), then we'll anticipate that decline as wave C of a more complex flat.

In conclusion, it appears bulls still have the edge here, and SPX is likely headed toward 2625-35 next.  Of course, in the event that 2566 fails directly, then we'll have no choice but to shift to a neutral/bearish footing until things clarify.  Trade safe.

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