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SPX Update: This Zone Represents a Confluence of Targets

I did a lot of work on charts tonight, but I’m going to keep the update short, sweet, and simple.

Yesterday’s market traded right into the target zone.  I now believe there is a turn coming either today or Monday.  I suspect today will be mostly choppy sideways movement with a slight upward bias — though the turn could come later in the day.

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The question I’m trying to answer is how significant this turn will be.  First off, I’m assuming this turn will come, so that’s presupposition #1.  Obviously, there are no guarantees it will.  Going along with that presupposition, and assuming this turn does come, it could end up being only a small fourth wave, and lead to new highs afterwards.  However, I’m now leaning a little more toward the idea that this assumed turn will be a larger turn.

Obviously, this is entirely speculative since the charts show nothing bearish whatsoever in the form of key trendline breaks or breaks of any key support levels.  I could very well be wrong, especially considering this is into the teeth of a strong rally.  So what could make me possibly consider a larger turn here?

Well, this zone does have some interesting characteristics. 

1) 1406 is a long-term resistance level.  The rally has come far and fast, and while it’s possible it will just power through this resistance, there is no reason to assume it will.  In fact, going long just under this level is front-running — until the rally breaks it and it becomes support, then this old resistance level should be given the benefit of the doubt.

2) 1406/07 is where wave (v) will equal wave (i) times .618; that provides resistance as well.

3) 1407/08 is the target from the bullish trade trigger which elected on March 13.

4) The short-term wave structure looks nearly complete.

Here are the charts, short and simple.  I’m leaning toward the black count on the 5 minute chart; the red count on the daily chart.  Okay, that’s not short and simple — sorry, I don’t have time to change the colors now. 

Anyway, my best guess for an approximation of what today’s action will bring is sketched in with the blue lines on the 5 minute chart.

As I said, I’m leaning toward the black count below.  Trade beneath the red KO level would rule out the blue wave 4 potential, but it seems incredibly unlikely that would happen today, barring Bernanke showing up on CNBC dressed in a chicken costume and singing “Old MacDonald.”

Next the bigger picture chart.  This chart shows the long-term support and resistance levels.  If the interpretation I’m leaning toward is wrong and the market powers through 1406, then next resistance is around 1425, and then 1440 above that.

And finally, I do want to show a more bullish interpretation, again keeping it simple.  This uses the Dow Industrials for illustration purposes.  If the SPX can maintain trade above 1406, then this could be how the market unfolds over the coming sessions.

In conclusion, I suspect today will be mostly sideways up, with a turn coming either later in the session or Monday. 

But it bears repeating that until the trendlines start breaking, there is no indication that anything bearish is happening.  The first trendline bears need to claim is the black line shown on the short term chart.  After that, they need to capture the red and black lines on the second chart.

Until those things happen, this is simply my speculation based on a number of observations — and quite frankly, I’m way out on a limb here. So if one even considers shorting here — perhaps just under 1406 resistance, or perhaps if the market trades above then falls back below resistance — then stops should be used (as they always should, in my opinion), and one needs to have awareness of the fact that if the market can sustain trade above 1406, then 1425-1440 become the next targets.

If the short term counts are right, today will probably have a lot of whipsaw action around this zone, so it could be tough to trade.  And the possibility clearly exists for the market to move much higher more or less directly from here — so the “safer” thing for shorts to do might be to wait and see if the bears can retake support near 1397.  As always, none of this is trading advice, and you should always consult your broker, your accountant, your priest, your barber, and your weird Uncle Bob.  Trade safe.

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