Yesterday’s market blew through the downside projections, much like the rally did on the upside earlier this year. It comes to mind that the prior rally became historically over-extended, so there are a lot of folks ready to jam the exit doors, and it shouldn’t be surprising to see the same types of extensions happen on the downside… if the trend has indeed changed — which I continue to believe it has.
I believe we are in the very early phase of a major trend change. While there is an alternate count that allows for another wave up, I view that as less-likely by the day. The market looks very weak right now… but we will continue to be on alert for the alternate until it drops below 25% probability, especially since SPX has not broken through 1340 yet.
Many indicators have reached oversold readings, and there are divergences on the smaller time frames, so some type of relief rally may be in order here. The shape of this rally will tell us a lot about what’s to follow.
Below is the short term SPX chart, which shows the conservative labeling, and corresponding bounce targets, for this decline.
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That’s the conservative, “everything’s oversold — be cautious” chart, and there are good reasons for bear caution. As an indicator of just how oversold, below is the McClellan Oscillator, which is generally one of the more reliable indicators out there.
RSI and MACD are arguing that the bounce can be sold. There are divergences in the short time frames, but not in the larger time frames. The larger time frames have “confirmed” the low — meaning the indicators reached new lows along with price. The majority of the time, this means that lower lows are still coming.
The charts above show the conservative arguments as to why a bottom is near (likely after the next low). But when I step back and examine this decline from an aesthetic perspective, I see the more aggressive pattern below as a distinct potential. I’m not advocating throwing caution to the wind, by any means. Examined technically, the odds are against this more bearish pattern. The pattern below is more of an aesthetic thing — and sometimes that works, sometimes it doesn’t.
If the bounce overlaps 1378.24, then we can take this count off the table and focus on the first chart.
Next is a non-Elliott look at the potential broadening top/megaphone that’s formed in NYA. It also shows that NYA has now overlapped the October highs, and broken the March lows. Both of these developments are intermediate-term bearish.
Next is an update on CVX, which has reached its 101 +/- target, which always means time to take some profits, and time to start watching for a bounce. This trade was an out-and-out winner, and I hope some readers were able to profit from my sell recommendation when CVX was trading at 110/111.
It appears probable that there’s some more downside still in store, but of course there’s no guarantee.
In conclusion, the odds favor the next bounce as being a good sell opportunity. How solid the bounce is will give us some indications of how far the decline may have yet to run, if indeed it does. Trade safe.
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