The market has done what we’ve expected over the short term and traded down into the SPX target box — but it has yet to answer the bigger questions. Right now, the decline off the high looks like a very nice A-B-C, so unless the bears can make some new lows, they could be in trouble. We’re simply going to have to wait for the market to tip its hand here.
Of note, the NYA knocked-out the possibility of this being a 4th wave correction. So the two most plausible options still on the table are:
1) The top is in.
2) The recent top was only wave (1) up, with (3),(4), and (5) still to come.
Here’s the NYA chart showing its key overlap.
I’ve looked at a lot of charts tonight, and while I remain in favor of the top being in place, there is as yet absolutely nothing to confirm that — in fact, given only the information that is in the charts right at this moment, one could argue that this was simply a correction to the rally, and that correction is basically over. So until proven otherwise, shorts who haven’t taken profit need to be quite cautious at these levels. If this was simply a second wave decline, then the next wave up should be powerful.
RUT has the same appearance of a “perfect” 3-wave decline. This is possibly why RUT has, so far, failed its target slightly.
Also of interest, a bearish trade trigger has taken shape in SPX.
NDX, being the rebel that it is, looks more like a first wave, or a-wave, down. So this might be some evidence in support of the preferred count.
In conclusion, at this exact moment there is simply no way to have a solid idea of what’s coming next. What happens on Friday or Monday should provide some answers. Is the market going to create another wave down and complete an impulse move off the highs? Or was this just another pause in the ongoing rally?
Place your bets with caution — and as I’ve said before: cash is a position too. Trade safe.