Monday, February 22, 2021

SPX Update: In More Detail

In the prior update, we discussed that the pattern wasn't quite as clean as I'd like and that this meant the market was reserving a couple additional options.  Let's review that, then look at this options in more detail: 

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).

Cash held that low for Friday's session, but ES (e-mini S&P futures) has made a new low in the overnight session, so I've sketched out a more detailed look at what the above options might mean:

In the event of a diagonal, we could see some more choppy downside.  In the event of the bear nest, we could see a significant and speedy decline.  It's worth taking another look at a chart I published on February 10:

Keep in mind that all of this is coming on the back of the potential of FIVE COMPLETE WAVES at last week's high, as noted last Wednesday.  Because (as noted) the pattern is a little wonky, I still don't want to get too far ahead of this market, but again, this does at least leave open the possibility that we are at or near an important top.  Trade safe.

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