Monday, June 3, 2019

SPX and INDU: Market Reaches First Important Inflection Zone

The market's been pretty straightforward for the last couple weeks with "no change/still pointed lower" being the preferred outlook each day.  And, of course, that outlook has since proven to be correct.  While there have been a couple minor inflection points along the way, we are finally reaching a more significant inflection point:  The point where an ABC down from the all-time high could be complete or nearly so.

While cash fell just a few points shy of my first next downside target zone (2737-47), that zone was captured in the overnight session by the S&P futures.  Now, I'm not presently favoring that this decline was merely an ABC that's complete/nearly complete, and consider it an outlier, but it is something we should be aware of.

In more immediate terms, the thing bothering me most right now is that we're supposed to be working on a C-wave or 3rd wave at blue degree (on the chart below), and 3/C-waves are normally stronger and faster than 1/A waves -- but that hasn't been the case so far.  That tells me we are likely either:

1.  Warming up for the meat of the move, via a series of first and second waves at micro degree.
2.  Not even in the actual 3/C wave yet.  This second option would mean we're seeing a b-wave low unfold, and we'll rally up toward 2/B before the "real" 3/C kicks off.

B-wave lows can be frustrating because there's just no way to predict them -- all we can do is remain alert to their potential.  So, that's what we'll continue to do.  If we begin to see small impulsive moves in the upwards direction, then that will be the first warning sign.

Additional consideration is that if we WERE to form a b-wave low near current prices, it would cause the most confusion to the market, since this is also the previously-discussed ABC inflection zone.  The ensuing rally toward "or 2/B" would cause bulls to become bullish again, and the impulsive nature of that rally would really throw everyone for a curve.

Sometimes the market instinctively chooses "the path of most confusion," so again, at least stay alert here.

No change to INDU either, and you'll note we're now right at the inflection zone shown by the projection lines that were drawn on the May 29:

The bigger picture INDU chart still shows the most straightforward path for ease of understanding, but the complex 2/B path discussed is alive here as well:

In conclusion, there's no real change to the intermediate outlook, but we have reached the first 3/C inflection zone, and the market may react to it.  If it DOES react, and especially if we get the complex correction, then things will become a bit less straightforward.  But we'll burn that bridge if/when we come to it.  Trade safe.

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