Friday, February 11, 2022

SPX and INDU: Slightly Divergent

CPI came in yesterday, indicating that inflation has reached a 40 year high.  The market initially only heard "high" and figured hey, that must be good!, so it rallied, until it realized it was being stupid, and then sold off, promptly giving back the day's gains.

This leaves SPX in an interesting position:

One potential fly in the ointment for the bears is INDU, which also looks like three waves into yesterday's high, but which broke its prior swing high.  This type of price action can sometimes imply that further upside is still needed to resolve the pattern (though this "further upside" can come after, in the example below, INDU heads below 34.8K (in the case of a b-wave high), it could also come immediately, in the case of a bull nest or ending diagonal -- the latter two seem less likely, but can't be ruled out).

In conclusion, SPX is a clear three wave move from 4451 to yesterday's high.  The cleanest pattern would be the abc as shown, but just in case SPX holds above 4451 and breaks yesterday's high, then we could be dealing with a bull nest or an ending diagonal (the diagonal would probably be my first choice of those options).  If the abc/3 as shown plays out, then we'll still be left with the question of INDU, but we'll burn that bridge if we come to it.  Trade safe.

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