Wednesday, December 19, 2018

Oil and SPX Updates: SPX Captures First Long-term Target Zone

This week, SPX finally captured its first long-term target, which was a break of the 2018 lows.  In a way, that might mean "the easy money is over" for this exact moment.  The market sometimes has a tendency to get whippy immediately after a major target capture, but we'll see how it goes.

Today is a Fed day, which typically means added volatility, but VIX is already hovering around 25, so it's hard to imagine today will generate too much more volatility than we've already seen in recent sessions.  What's interesting here is that pretty much everyone is expecting another rate hike today -- so one would think that's already priced in... but the pattern says that a nested third wave is possible.  So does that mean there are still a few holding out hope, and if we get a rate hike, the market will finally give up and let go?  Possible, but let's not ignore the other side:

The other side is that a complex b-wave low is still not out of the question, so any positive surprises could lead to a big c-wave rally.  At best, a rally would simply delay another leg down, and present bears another short op (in the end).

Zooming out, we can see that we now have a whipsaw of the long-term red trend line.  This is what we've been expecting for a while.

I've also had requests for an oil update, but this chart has managed to work for months at a time since 2011, with very few updates needed.  Last update (May 2018) expected that wave (iv) could complete near 72 +/-.  That zone did offer resistance and ultimately generated the current waterfall -- but oil ran just far enough that I can't rule out the possibility that Red C completed back at 26.05.  I mean, after all, that was a mere point away from my long-standing target of 25, which was originally published in September of 2011 -- and technically, I always included a "+/-" next to the 25 target... so you know, capturing around 74 points of oil's last decline might have been good enough.

Basically, the first warning sign oil bears want to be alert to is a sustained breakout over the red waterfall trend line.

In conclusion, SPX has captured its first target zone, so some whipping and sawing wouldn't be unusual here.  On the flip side, I cannot overemphasize how much bearish potential energy is in the current pattern.  If bulls can't generate a c-wave rally soon to relieve a bit of pressure, this could easily turn into a sustained waterfall decline.  Trade safe.

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