$SPX Midday Update

My bullish case is maybe not looking so good. What I had wanted to see for that was a somewhat time-consuming accumulation far closer to the lows, perhaps like this:

SPX

And then my other bearish case (where we could count this rally as a “4” (here) is also now not looking quite so good. This rally has been fast and sharp, and on what? On a Fed rumor (for the most part). And that’s maybe not so good. I believe they were using as a trial balloon.

So, since this is not giving me the impression that it has been accumulated, and since this has become a very sharp and deep retracement, I worry that it might actually be a “2.” That is a very bearish scenario.

If it is (a 2), we might do any of a few things. We may consolidate in a range, defined today (as noted here), in which case we could stay in the orange box area for a while. We may also go a little higher still, depending on how we want to count the rally. Counting it as I have below (the Green A-B-C for the Orange 2), we may go to 3918 for instance, as there is wave balance at that level:

SPX

Once (and if) we do drop, I would expect minor (Green) 1 to take out the prior low, and a good target for that decline is probably still 3389. Now note the 200-week SMA on the chart. If we get to ~3400, we’ll be below it, and we can see another retracement for Green 2 that retests that moving average from beneath. That can be very dangerous, as I noted a few months back (here). It’s probably impossible for us to actually “crash” while above that moving average, but we lose that protection if we end up back beneath it (I discuss that a bit in the article from June that I just linked to).

Now, we’ve had a bit of a reversal today, and we still have important earnings and a Fed meeting all coming up, and so it’s possible that we’ve topped now, but it’s still possible for us to stay in a range, as well as go a little higher to 3918, too. I can’t easily predict that here because there are many large forces present with us here.

One reason to possibly give it a little more space for a bit more rally room is this trend line on futures:

ES

We got this close to it, and so it’s possible that we do end up tagging it.

I am going to keep my puts of duration. I was able to get a futures short back on very close to the high today, and I’ve taken that off again temporarily for a ~40-point scalp. And I may try other shorter-term trades with that.

So, lots can happen here, but I don’t have a lot of confidence in the bullish scenarios at this time. I think there remains a good chance this rally will fail.


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