That said, unless bulls can sustain a breakout over 6723, we do have to respect the three-wave nature of the rally and maybe give a slight edge to bears for the time being. (Do note that there's also one bear pattern that breaks 6723 briefly before getting ugly, so even 6723 isn't a complete failsafe for bulls.)
Let's take a look at why I added that warning, starting with the SPX 24-hour chart (I'll explain its significance afterwards):
The key observation about this chart is the BREAK of the mini-crash low. Yes, there is one potential bull pattern under which such a break would be expected -- but there are at least three potential bear patterns that opened up at that break:
- a b-wave low (which I was indicating via Friday's parenthetical (quoted above))
- a bear nest
- an ending diagonal that still needs a new low
This means, all other things being equal, there are more ways for this to work out in favor of bears than there are for it to work out in favor of bulls -- at least over the near term and as of right this second. I say that because if bulls can clear the red bear 2/B high, then they eliminate options 2 and 3 from that list.
Let's look at the SPX cash chart with EWT labels:
That chart explains itself, as does the red channel chart:
Finally, a more basic look at INDU:
On the chart above: Yes, RSI divergences can run on and on before meaning anything -- but they're not what bulls want to see, because while RSI divergences don't NECESSARILY mean the rally is over, neither do they offer any indication that it isn't. So it's another weak warning flag for bulls.
In conclusion, yes, bulls could still recover the ATH directly, there are no slam dunks here for bears... but this is not an ideal position for bulls at the moment. If bulls can clear the red 2/B high on the first chart, then the picture gets a little fuzzier again. Trade safe.
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