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SPX Update: Looks About Right So Far…

Tuesday held no surprises as the market did a ramp and camp, which fits the terms of the technical bounce discussed yesterday.

Toward the close, I wrestled a bit with the wave structure, but in the end decided it appeared a little more likely that the rally would carry forward in at least one more leg.  It does remain plausible that the fourth wave completed yesterday as part of an expanded flat, but that’s the alternate count.  I don’t think it’s entirely clear-cut, and I would say I’m split maybe 60/40 on the odds between the two short term counts.  Any print above yesterday’s high would rule out this alternate. 

The short term SPX chart is below.  Theres been no material change in this chart since yesterday, but we now have a more accurate “perfect world” target for wave c of 4, at 1384.  Support/resistance levels are shown in black, and the rally stopped right at 1375 resistance yesterday.

If for some reason the rally can’t make it back up to the blue target box (it doesn’t have to get there tomorrow — I’m speaking more in general), then that would (obviously) be bearish and could indicate that this count is too conservative.  Yesterday’s “aesthetic chart” covers that possibility in more detail, but I’ll worry about that more only if I need to.

The larger degree alternate count (black) shown above considers the possibility that wave (i) has bottomed.  Bears want to remain cautious if the bounce is stronger than expected, as possible warning that one of the alternate counts may be unfolding.  Ideally, if this is a fourth wave, it should not sustain trade above 1388. 

What bothers me a little bit for the preferred view is the huge gap from 1398.  This gives the bulls, and the market makers, something to aim for — so do remain aware of the larger second wave potential, and if momentum seems to be increasing and 1388 can’t contain, then bears may want to hold onto their wallets until 1398 or so. 

We’re also still watching the big picture alternate count (below).  On the upside, 1398-1400 is currently the level to watch for clues about this possibility.  Closes north of 1398 would be bullish; conversely, a clean rejection at that level could kick off the next big drop.

A few of the reasons I’m not currently favoring the big picture alternate count are shown below.  NYA and INDU look particularly weak, and have both broken their March lows.

In conclusion, yesterday’s bounce was as expected, and another leg up of roughly equal length would fit the terms of the preferred count.  After we have some more solid indication of where the assumed wave 4 has topped, we’ll calculate some targets for the next wave down.  In the meantime, there are several levels for bears to watch which could give warning that one of the alternate counts was in play.  Trade safe.

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