Monday, August 29, 2022

SPX Update: Confirmation

Back on August 19, I wrote:

[O]n the first two charts, we can see that bears have formed a small impulse down (blue 1/A), but still have work to do in order to create a larger impulsive turn, which is what's required in order to suggest a larger trend change. I'm leaning toward the idea that they will (and that we've about seen the end of this bear market rally), but that's just a pure hunch, so take it with a grain of salt -- from an objective scientific standpoint, it's too early to say whether or not this decline will become impulsive.

In every subsequent update, I reiterated that I believed we were witnessing the start of a meaningful turn, though because it's hard to quantify the "it just feels right" instincts that come from 20+ years of tape reading, I also continued to caveat that we had no objective confirmation yet.  

Well, now we do.

On Friday, SPX finally added the structures needed to suggest a larger impulsive decline from this month's highs, and thus seems to have confirmed my read:

On the above chart, I noted that this is PRESUMED to be a fifth wave -- one of the tricky things during bear markets is that surprises come to the downside, and there is no law that says the current wave needs to complete in a "typical, usual, average" fashion.  If it were to behave in the "typical" way, the black trend line (+/- a little) on the chart below would represent a logical spot for wave 5 to end and thus to wrap up the larger wave 1 down, leading to a wave 2 bounce.  But I cannot stress enough that it does not "need" to do this, fifth waves can always extend, especially in bear markets -- so it's just something to be aware of.

Bigger picture, it increasingly looks like either ALL OF Blue 2 is complete, or ALL OF Wave A of Blue 2 is complete.  The latter option has some appeal, because it would allow Blue 2 to burn more time before the big third wave -- but again, bear markets, downside surprises, yada yada, everything I just said a paragraph ago.

In conclusion, SPX has now formed an apparent larger impulse down from this month's highs, suggesting that bulls will be taking the back seat for a while.  Trade safe.

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