Friday, February 19, 2021

SPX Update: Direct Hit

Last update I discussed how I believed the market would head lower over the near term, but that it might still need another high afterwards.  I sketched a gray path on SPX as my preferred path, and the market declined to, then bounced from, the exact inflection point:

In ES, the decline looks like a clear five-wave structure (what we "expected" to see):

But in cash, it's not quite so clean.  As long as that low holds, we'll assume we're dealing with the gray path as originally shown... but because the structure isn't as clean as I'd like, the market is leaving open two interesting options:

1.  Sustained (and particularly: accelerating) trade below the recent low could suggest a bear nest and a significant decline in the works.  (Be aware that a brief break of the low could suggest an ending diagonal that would resolve higher -- so bears beware whipsaws in the event of any new lows.)

2.  The low might be another b-wave, indicating an increasingly complex flat.  In that event, we'll run up to retest/best the all-time high, then run back down below this week's low, then run back up AGAIN to a(nother) new all-time high.

So we just had a nice little win, but now we'll have to see how the market wants to handle these options from here and track them as they unfold in real-time.  Sustained trade below last week's low would be the second clue that perhaps ALL OF 5 (at current chart degree) has completed (the first clue was the potential for five complete waves, as noted on Wednesday).  Trade safe.

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