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SPX Update: Revenge of the Beard

This market remains a mess, though perhaps some semblance of order is beginning to emerge from the chaos.  Way back on Friday the 13th, I suggested that the market would form some type of “double retracement” due to the extended fifth wave.  What threw me off heading into yesterday was that it looked like we’d already had that double retracement.  Turns out the market felt we needed another retracement just for good measure. 

The market seemingly felt obligated to cheer on good old Uncle Ben yesterday and, no doubt, cries of “Win one for the Beard!” could be heard echoing throughout the halls of Primary Dealers everywhere.

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It’s vitually impossible to predict this type of market in advance.  To a degree, it can be predicted in real-time… but looking at charts from one day to the next, it’s quite difficult to anticipate a correction of this complexity.

The mess at the beginning of the wave makes predicting its resolution somewhat challenging as well.  I’m inclined to believe this is a 3-3-5 expanded flat, as I mentioned yesterday morning.  In that case, it’s nearly complete.  It may have a bit more down/up first — my “perfect world” target would be 1397-1399 for completion — but it’s also possible that it completed yesterday.

There are two counts shown.  The count not shown is represented by the red box — another repeat of the fractal within the box, to stretch the correction out even farther, is possible.

In the bigger picture, I still favor continued downside after this correction is complete (assuming that ever happens).  The alternate count remains as a possible bottom at 1357.  I view that as unlikely.

Yesterday pre-open, I mentioned that I believed the Euro/USD currency pair was forming an ending diagonal.  I wasn’t sure if it was complete, or had one more wave up left in it.  Today, we got that wave up, and the pair has now formed what appears to be a complete textbook ending diagonal.  There should be strong selling in store for Euro over the near term.

This is a particularly good diagonal because that last wave up ran a ton of stops — I watched it unfold, and actually played it on the long side.  Caught a few quick bucks as a momentum play, then I sold my longs to all the shorts who were covering.  But I imagine a lot of shorts will have to chase now, which should give it some fuel down.

Diagonals can be misleading, and it’s still possible that the wave labeled v is actually iii, but in this case, that seems much less likely.

In conclusion, I continue to favor an ultimate downside resolution to this mess.  In a perfect world, this correction may or may not have a tad more upside left, but should be over fairly soon.  Trade safe.

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