Friday, October 16, 2020

SPX Update: Market Behaved Exactly as it Should Have

Wednesday's update predicted another leg down would be forthcoming:

SPX has rallied back to retest the all-time high, and does appear to have formed a small (50 point) impulsive decline from its most recent high. This suggests bears have the first chance for a turn since the rally from 3209 began. Whether that turn will be a simple ABC to be met with new highs after, or the start of something larger, remains to be seen. (All presuming that first 50 point leg is indeed an impulse; to be confirmed or denied by the market directly).

That presumption was correct, and that read was, of course, confirmed by the market.  On Thursday I posted a quick update with the micro (one-minute) wave count, and wrote:

Note that the end of day rally yesterday was likely wave 4 of either C or 3, so that makes this morning's gap down part of 5 of C/3 -- which means the larger decline is not yet impulsive and would need a larger 4/5 to become so.

That count (which I posted in the forums prior to yesterday's open) was also confirmed, as the market seems to have completed wave 5 of 3/C at the open, then spent the rest of the day bouncing:

As we can see on the chart above, bulls have not yet overlapped any key levels, so it is still technically possible for the bounce to be a fourth wave.  Yesterday's low is currently the dividing line between an ABC down from 3549 (it's three complete waves down) and an impulse down (if it were to make a new low).  Bears would need the impulse to suggest a larger trend change.

Bigger picture, if there's no new low, the decline could fit as blue 4 (there are other ways to count this, though -- but roughly speaking):

In conclusion, the last two wave counts have both proven out, and yesterday's low marks the inflection point for an ABC corrective decline that keeps the uptrend intact -- or, if a new low shows up, the potential of a larger impulse down from 3549.  As simply as possible:  No new low would mean bulls keep the ball for now, while a new low would likely shift it into the bear court for at least the immediate future.  Trade safe.

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