Monday, October 28, 2019

SPX and INDU: Two Years in the Making?

Last update we identified a wedge-like pattern near the recent SPX highs.  People who spend a lot of time on the forums with me know that a wedge pattern typically means "diagonal or nest" -- meaning that it's a bi-modal pattern; either it reverses fairly directly or it leads to a strong continuation move.  This morning, SPX futures look primed to launch the market over the all-time high, which has been stiff resistance for (incredibly) almost two years now.

Keep in mind that there is a test period on any breakout (or breakdown) during which the market can decide it's not ready and reverse.  This can take anywhere from a session or two, to several weeks.  What bulls would like to see is either a breakout with increasing momentum, or a pause that consolidates ABOVE prior resistance.  Either of those events would likely signal that we're in the bullish long-term count discussed back in July, and reprinted below.

Below is INDU's chart for reference -- SPX would track fairly closely.  We'll see how things go in these initial stages before getting too attached to this, but IF THE BREAKOUT STICKS, we're probably looking at something along these lines:

Next level down, INDU has the consolidation pattern of the more recent past:

And one level down from there, it broke out of the blue channel last session:

SPX below:

I've focused on INDU in this update, but again, SPX would be expected to track closely.  For quick approximations, you can typically approximate INDU and SPX at roughly a 10:1 ratio to each other (100 INDU points typically equals in the general ballpark of 10 SPX points, give or take a little, etc.).  I'll update SPX long-term charts after we see how the market reacts to the breakout.

In conclusion, SPX at least looks primed to break out over its all-time high, and this means bears will have a short-window in which they could turn things and create a whipsaw... but if they can't, as I mentioned in prior updates, it might be time for bears to go into hibernation again.  Let's see how the market reacts over the coming sessions -- but again, do keep in mind that if this pattern is simple and straightforward (the pattern shown in the first chart), then it is very bullish over the intermediate term.  It will take a curveball from the market to get bears back in the game (for example: a b-wave high, which would be temporary, or an ending diagonal).  Right now, it looks like it might be the straightforward bull option, but we'll track it as it unfolds.  Trade safe.

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