Thursday, January 26, 2023

SPX Update: A Refresher, and a Look at the Near-term

Over the past couple months, we've witnessed the market turn down at the blue 2 inflection zone, then turn up at the next downside inflection zone (which was the inflection zone for a corrective ABC expanded flat decline), then turn down yet again at the next inflection zone (which was/is the inflection zone in the event the low was not the aforementioned expanded flat)... and SPX has since rallied back up to test that last inflection again, which is where it sits as of the time of this writing.

There's really no change to anything I've written for the past several months, but I wanted to again drill down a bit into the details to refresh everyone's memories.  

The bigger picture chart previously pointed higher toward either blue 2 or red 2.  We reached blue 2, and the market reversed -- but right from the start, we were immediately cautious about that reversal, for reasons I discussed on December 16 (and several times since):

SPX was again rejected smack at 4100, the price point I've been watching for more than a month and a half, but the market has left a less-than-clean top in its wake... the most recent tops in SPX and INDU are not ideal, leaving open the possibility of a B-wave high expanded flat pattern.

As of today, we still have yet to get any confirmation that said reversal was anything more than that previously discussed expanded flat (often referenced as "to B or not to B" in past updates).

For reference, here's the big picture chart again, with blue 2 and red 2:

Beyond that, I also want to talk about the near-term, because I've seen some interpretations of this pattern that are only looking at one side.  Over the near-term, SPX has formed a rising wedge.  Rising wedges are not necessarily bearish patterns -- they can also be "pending launch" patterns (bull nests, which are a series of first and second waves pointed higher, sometimes take the form of a rising wedge).

For the above pattern to become bearish, bears would need to whipsaw any breakouts of the upper trend line, then break and hold the lower trend line.  Until that happens, it pays to continue to consider both sides of the trade (especially given the ambiguity we observed in real-time at the 4100 high).  Blue 2 is still on the table, but we should not forget about the possibility of a trip to (or beyond) red 2.  Trade safe.

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