Friday, October 11, 2019

SPX and INDU: Next Inflection Looms

Last update noted that a rally to 2930-39, followed by a new low, would not be unusual.  The market then proceeded to play a trick on cash traders -- SPX rallied up to 2929.xx, reversed from there back to 2917, and then the session ended and the cash market closed.  Meanwhile, the SPX futures market continued dropping like a rock and indeed made a new low on Wednesday and Thursday.

This left cash traders high and dry, as the futures market completely reversed this decline, causing the cash market to open flat.  It appears this futures decline satisfied the requirements of the pattern and resolved the need for a new low.

I mentioned all of this to forum readers shortly after the open yesterday, so hopefully no cash traders were caught out by this move.

Moving on to the cash chart, the second leg of the rally is now underway, which (except for the screwy cash/futures issue) isn't unexpected.  We were viewing the last decline as likely "backing and filling" from the start, and before that even began, I wrote (on October 4):

...the strength and momentum of yesterday's bounce usually leads to at least a two-legged bounce, so it would be unusual for bears to regain immediate control without a fight from bulls first.

This will now satisfy that expectation as well, so hopefully the recent string of hits was helpful, because we'll be back into a sort of "predictive no-man's-land" in no time flat.

I've outlined the next "obvious" resistance zones, but it's unknown at present if this rally will only be an ABC, or if it will become an impulse:

Bigger picture, nothing much has changed, except to note that INDU appears ready to bust red line resistance on this second run:

In conclusion, outside of the futures market doing the work of cash and making a new low on cash's behalf, there have been no real surprises lately -- but we are heading back into an inflection zone now, and will simply have to see how the market reacts.  Trade safe.

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