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SPX Update: Next Target Unchanged, but More Bearish Potential Exists

Yesterday’s rally exceeded my target zone by 2 points, and has necessitated a slight shift in the wave degrees.  The rally was probably a bit too large to be blue wave (4), and has thus indicated that it is most likely the higher degree red wave iv.  This leaves an interesting situation where red wave i and red wave iii are nearly equal lengths.  This type of behavior commonly precedes an extended fifth wave. 

That means that while the target zone of 1240-1260 remain unchanged, the potential exists for a fast drop down into the low 1200’s.  In other words, things may be even a bit more bearish than previously anticipated.  We’ll have to see how the wave unfolds to confirm or deny this expectation.

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The rally has now formed a clear a-b-c structure (unlike yesterday’s somewhat fuzzy structure), and it has probably topped at Tuesday’s 1328 print high.  As I’ve said before, though, 4th waves are known to string several fractals together, so another down/up sequence can’t be ruled out (or anticipated — it either happens or it doesn’t).  I suspect there probably will not be another down/up, and that the top of this wave is in.

The intermediate outlook is unchanged, with the exception of the addition of the more bearish potential of an extended fifth wave decline to the low 1200’s. 

In conclusion, outside of the more bearish possibility, there’s really not a whole lot to add.  Things have played out pretty well in line with the updates and targets from Thursday/Friday. It remains my belief that we have seen an important and major trend change, and that this decline is only the first wave down of many more to come.  Trade safe.

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