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SPX Update: A Tough Call

It all seemed so simple when I started writing tonight, but after studying the charts in more detail, it’s not as clear-cut as I’d hoped.  I believe the wave down from the 1367 high counts best as a 5-wave impulse, which initially had me leaning in one direction — however, this impulse could fit into the picture in one of two ways. 

1.  It was wave c of an expanded flat fourth wave correction, with a new high to come (preferred view).
2.  It was wave i of a much larger five-wave decline (alternate view).

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I am leaning toward the first option, though it’s a very tough call. 

Since February 8, I’ve been anticipating that the rally would reach this price zone — but I now firmly believe that this leg of the rally is indeed nearing completion (possibly complete) and that a larger correction is due very, very soon.

My preferred view is that there will be one last high for this leg of the rally, in the 1371-1380 zone.  That count is shown in blue on the chart below.  The alternate possibility is shown in black and gray.

The 5-minute chart below depicts a possible topping formation underway, however that’s the alternate count.   Breaks of the black channel lines and the red trend line will be the keys to watch on the downside — a break of the recent highs would be key on the upside.

I want to expand on the alternate count briefly, and show how I arrive at labeling the decline as a five-wave move.  If the alternate count is playing out, the recent 1367.76 print high should remain intact.  Below is the alternate count shown in more detail.

Next is the 10 minute chart, which shows the larger, more important trend channel and various support zones.

And the final chart is another one of my proprietary indicators, which recently generated a sell signal. This particular indicator has a 78% win rate, though it doesn’t predict the magnitude of a decline.

In conclusion, while both counts favor more upside on Thursday, the preferred count favors a slightly higher high still to come. I am now firmly convinced that, one way or another, this leg of the rally is wrapping up inside this anticipated target zone.  A moderate-sized correction should be on deck. 

Trade above the recent highs would indicate that the preferred count was correct and wave 5 is still unfolding, with a target in the 1371-1380 range.  Conversely, solid breaks of the lower trend lines would favor the alternate count.  I would remind everyone that while the counts strongly anticipate that the market is very close to a trend change, the upward trend is, as of this moment, still very much intact.  Trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

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