Monday, May 6, 2019

SPX and INDU Updates: Market Continues to React to Wednesday's Inflection Zone

Today's premarket indicates that bears have gotten restless, but there are a number of zones that will be important to watch over the near-term, which will test the bear resolve.

First, last Wednesday I published a chart that I hadn't published (or talked about) for four months and warned that we had finally reached the inflection point for that intermediate bear count.  For SPX, Wednesday ended up being the high of the move off last year's low, and the market is reacting strongly to that inflection point, so it appears my timing couldn't have been much better in that regard.

It does remain to be seen if this decline will be "just a correction" (it could even retrace 50-63% of this year's rally and remain "just a correction"), or if it will ultimately break last year's low -- but either way, it never ceases to amaze me how often the market recognizes and reacts to major inflection zones.

We're going to maintain our focus on INDU for the time being (because I like the pattern there better, and INDU typically leads SPX), but first, a quick update on some upcoming SPX zones to watch:

The most important thing to note on the chart above is that the first inflection zone could come fairly quickly after the open -- meaning bears' first test will likely come soon, so be very careful if you attempt to short the hole.

INDU's long-term chart shows that it has remained stalled at the intermediate resistance zone that I've called attention to in prior updates.

Near-term, here are some levels to watch in INDU:

In conclusion, the market has reacted to the inflection zone I discussed on Wednesday.  Bears do still have some work to do, but this appears to be the best shot they've had in a while.  We can't yet rule this out as another fourth wave (which would be a short-lived correction), but bears do at least have the option to turn this into a much more significant decline.  We'll see how the market reacts to the upcoming inflection zones, and take it from there.  Trade safe.

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