Summary

  • Upside in the S&P 500 is limited before a pullback occurs.
  • All three of the most probable scenarios resolve to the downside.
  • If you are looking to go long, be patient, better days will come.

The S&P 500 broke over the high made on February 5th this week on continued technical divergences, decreasing volume, and declining advancing issues. This last Sunday I wrote:

First, keep in mind that B-waves and 4th waves are the most difficult market action to trade, and for many going to cash and awaiting a capitulation low is as good a strategy as attempting to trade various legs of the correction. For those who are looking to be more active, here are the potentials.

  • ABC for Blue B – in this count the SPX has topped this past Tuesday and is in the blue B. To confirm this, ES needs to take out 2,611. Assuming the low established today holds, then any meaningful bounce into fib resistance that holds below SPX 2,738 is an actionable short, and will confirm by taking out 2,682 SPX to the downside. We will then watch the 2,624 level to see if it holds, and if it turns back up will exit shorts. However, assuming 2,611 is taken out we will be looking for the completion of the B-wave as depicted on the chart below, with a price target of 2,521 – 2,411. Upon the completion of the move into the 2,521 – 2,411 region, we will be looking for long positions for a 300 – 400 point move up to complete the C-wave of Blue B.
  • Alt. B – a direct move up to the 2,868 region. IF the 2,611 can hold, SPX can be forming a finally smaller abc structure that heads straight up to the 2,800 region, specifically 2,868, to complete all of the B wave more swiftly. In this instance, we will be looking for shorts for the blue C-wave down to complete all of Primary Degree Wave 4.
  • Alt. ii – retrace and head to new highs. While I don’t have this denoted on the chart, per se, it is not to be ignore than if the pre-Christmas low represents all of Primary Degree wave 4, then the entire move up into last Tuesday represents the initial wave i, and after retracing this move up, the SPX heads to all time new highs.
Of the three most probable scenarios, we still think the most likely at this point is option 1, and having broken up this week are looking for a price target from current levels up to the 2765 – 2785 to contain blue A-wave to turn down. A sustained break of 2730 would be the first strong indication that the A-wave is complete and we are now in the B-wave. See chart below, still in the A-wave territory. A break over the 2802 region would be reason to toggle over to the Alt. B count as most probable, suggestive that the SPX will fast forward a direct route to complete all of the B-wave.

S&P 500 Stock Index

Also supportive of the large ABC count as being active is the chart patterns for Apple Inc. (AAPL), Alphabet Inc. (GOOGL), and Amazon.com Inc. (AMZN), provided by Time Price Analysis. When the chart patterns for individual stocks match that of the S&P 500, it helps provide clues as to which count is most probable

Apple Inc. (AAPL)

Alphabet, Inc. (GOOGL)

Amazon.com Inc. (AMZN)

All of the most probable alternatives resolve downward at some point in the very near future, so if you are exiting longs and looking for where to re-enter, this is a good time to be patient.

Active investors should be focused more on the short side.

Brian Fletcher
Brian Fletcher