$SPX Evening Update: What I’d Ideally Like to See Over the Next Few Days

Ok, so support is broken. We’ve clearly left the red channel behind us. And, we got the full depth of the orange box I have had up for several days (e.g., 3rd chart here).

A couple of simple things I want to point out.

First, we sold all day long and yet, we closed above these prior highs (green arrows on the left), and we closed at the lower green trend line of the funnel-looking thing (red arrow on the right):

SPX

Closing over those prior highs may be a short-term bullish signal. And, closing at the green trend line (which is resistance) leaves open the possibility of a gap up to overcome it.

And that leads me back to the thought I expressed earlier today (here). What we didn’t do at the channel is gap under it. If we had, I would be open to a much faster decline, one where we may not get many pullbacks up here; had we broken support with a gap, it could be less likely that we would come back to retest it. That was much of the substance of last night’s post because honestly I thought we’d get that gap.

However, we didn’t get the gap, and so now I am open to a retracement: losing support the way we did makes it more possible that we go and revisit it. And if we do, here is how I think it might play out.

I think was a “3rd” wave (of minuette [orange] degree). That should mean we still have a 4th and a 5th ahead of us. Now, every Tom, Dick and Harry out there just got the memo that the bullish case is in jeopardy. Folks are going to want to sell a rally. And lots of folks will also want to see a revisit of the channel.

But, knowing we need a 4th and a 5th wave, and knowing that we then need the blue 2, I think we may rally in the 4th orange wave, and maybe revisit the channel, but maybe fall shy of it, too. Everyone will pile in, looking for a big drop, but we may fall maybe 60 points? I’d like to see something confusing in here. And just like everyone has mistaken ending diagonal triangles at highs, the other thing a lot of folks keep missing are truncated 5th waves at lows, which we’ve had plenty of, too.

And so a truncated 5th wave would be fantastic. I might not get it, but I’d like to see it. Especially if we end up there at a close. So, if that truncates, we’ll have 5 waves down, and we should see 3 waves back up, and if the orange “4” doesn’t quite retest the channel (most people will think the retest has already failed), we can go on to squeeze genuinely back up to the channel in the blue 2—a real retest. And hell, maybe even poke back into it (which I’ve seen them do before). And looking at where that 200-day SMA will be coming through, it’s even possible that revisit that as well.

SPX

So that’s my ideal setup here. I may not get it. But, a retracement that is fake (the orange 4), a drop that is also fake (the orange 5), then a 3-wave squeeze that goes a little uncomfortably too high for people’s liking would be best. And with the orange 5 not making a new low, it might even look rather bullish, like this:

SPX

If we get a truncated 5th wave that doesn’t make a new low, it might look like we only had 3 waves down, then a “1,” followed by a deep “2,” and if we then get a big squeeze and poke back into the channel (preferably into a close), this whole thing could look like a big pullback that will be followed by new highs, only for us to collapse in a 3rd wave down. So, that would be best. I may not get it, but this is what I will try to develop over the next few days if I can.


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