Friday, April 20, 2018

SPX Update: Market Reacts to Inflection Point

Last update noted that the market had reached an inflection point (a zone where a reversal has a higher probability of occurring), and the market reacted to it.

The decline from the most recent swing high is three waves so far, but a sustained breakdown at yesterday's low would at least begin to suggest an impulsive decline from 2717.  An impulsive decline would suggest that the near-term trend had shifted to down, as one impulse typically begets at least one more of equal or greater length.  It would also keep the ending diagonal very much alive.  And keep in mind that diagonals typically retrace themselves in their entirety in 1/3 to 1/2 the amount of time they took to form:

Please note the wave degrees by color and that blue "or C" could still mark the bottom of red (B).  (We'll worry about that if/when we get there, though.)

In conclusion, we correctly identified the most recent inflection point, and the market has reacted to it, which leaves both options on the table.  Since wave 5 didn't quite break 2585 on its last attempt, which it should have, I continue to think the diagonal is a reasonable possibility.  The first step for bears would be a sustained breakdown at yesterday's low.  Trade safe.

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