Wednesday, July 14, 2021

SPX Update: No Surprises

Last update noted that higher prices were ultimately still likely, and to stay alert to potential resistance in SPX at the long-term trend line.  Yesterday it tagged that line squarely, and the market reacted to it:

Near-term, by all rights, it appears reasonable to suspect that yesterday's decline was wave c of an expanded flat -- though it's always a little tricky, as the c-wave of an expanded flat is always a motive wave.  This is the only corrective pattern where an impulse wave doesn't begin the move, but ends it.  Here's a quick refresher on expanded flats, because this is, in my experience, one of the most valuable patterns to learn to identify:

The tricky part with expanded flats is that sometimes the three-wave move into the high can be the end of a diagonal (the subwaves in a diagonal break down into three-wave moves).  And that's at least possible here, so bulls might want to demonstrate a bit of caution in the event SPX were to breakdown at yesterday's low.  A sustained breakdown might suggest a trip toward the lower green channel line, though that could still be part of blue (iv) as long as it remains above blue (i):

In conclusion, as expected, the market met resistance (again) at the long-term trend line on the first chart, but still suggests it probably needs another [at least one] more wave higher to complete a larger impulse from blue: 4.  Do continue to keep in mind the market reserves the right to form an extended fifth if it so chooses.  On the flip side, were it to instead decline directly, and particularly if the green and red trend lines were to fail, then gray bull: 4 would come into play.  Trade safe.

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