In yesterday’s post, I discussed a couple of options. If the October low was a very lasting low, I accept the December highs as an intermediate high, and from that, we’re consolidating.
In the first option from yesterday, I have that consolidation as complete, and we’re set to continue rallying. And if we persist above the 200-day and continue to move up, I will go with that idea.
In the second option, I explored the possibility that that consolidation isn’t done yet, and we need another drop. Tonight I want to focus on a slightly more bearish variation of that second option.
There are several reasons I favor this for the time being. Breadth has diverged at this fresh high on SPX, as has high-yield credit, momentum indicators, and even the VIX. It makes me suspicious that this breakout over the red trend line is going to stick, and it may mean that it’s run out of steam. I believe there are good odds that this will become a failed breakout.
If that turns out to be true, I believe we are still in intermediate (orange) 2, and that structure should be a 3-wave A-B-C in green. I believe A and B may be done, and if we drop, we will have entered green C. That may take us to 3700, which will coincide with a 200-week SMA retest, and it may look roughly like this:
There is a setup here today for a little 1-2 in blue, and we’ll need to move lower in order to confirm we’re in the 3rd blue wave down.
Have a good evening.