Perhaps $XLF Offers Us a Vital Clue

Three charts for you to look at.

The move down on $SPY from the top is a complete mess to try to count with any strong degree of certainty. We can certainly take any number of guesses, but it’s too hard to say for sure, I think, one way or another. And getting it right sort of matters.

If it’s a 5-wave move down like this (and every single bear out there right now says it is), then we would expect a 3-wave move back up, followed by another devastating 5-wave move down. It would mean that the correction is not over.

SPY

But, on $XLF, it may be a little clearer, and it’s more suggestive of the lows already being in or at least quite nearly so. Whereas on $SPY, where we made a 3-swing move starting on the 15th (the orange 2 in the chart above), $XLF produced an expanded triangle, it seems to me. That is far more suggestive of a B wave. And after that we would expect a sharp C wave, and we got it. It may need one more lower low, but it would happen in the next day or two, from these lows, if it did need it. And considering the weight the financials have in the S&P, it seems less likely to me that we’re going to see another huge move down after a big bounce. This looks like a 3-swing move that’s either done or nearly so.

XLF

We can also try this count on the S&P. It would look something like below, and it actually looks pretty good, I think. It’s not something that would even have occurred to me had I not seen it on $XLF first.

It’s a nice little ascending triangle here, which I had not yet at first seen, but, it looks great, actually. The big gap is obviously a 3rd wave (of c on these interpretations) and it’s possible that we get another lower low, but if we need those, we should get them tomorrow or very soon. After that, it should be off to the races, if we’re not already off to them now. But, seeing these gives me some greater confidence that we’re not going to have a big rally followed by another huge dump. When we get that big rally, we may only get a pullback wave 2 from there (in other words a higher low, not a lower low).

SPY

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