Not Many Good Choices

We had a very interesting end to the day yesterday. While the SPX did not see an invalidation of its wave 2 in yellow, it certainly went deeper than the standards we normally see for a 2^nd wave. And, this often portends a break of the set up. Yet, the SPX has still retained the set up.

However, the ES – just after the market closed yesterday – spiked up and then spiked right back down. And, yes, the ES saw its immediate bearish set up invalidated through this action. However, there are a very small number of times I have seen in the past where an after-hours futures move was to be disregarded due to the lower volume after hours action. I am not quite sure if this will be one of those times.

But, what both patterns suggest is that as long as we remain below yesterday’s high, pressure remains to the downside. Yet, the best downside impulsive action I can point towards in the SPX is the potential for a leading diagonal for wave i of 3 down. Needless to say, this is not a resounding bearish statement that provides us with a high probability downside expectation. Yet, it is there as long as we remain below yesterday’s high.

Now, without any STRONG downside indications, I have to entertain other considerations. While the yellow count in the bigger picture is still bullish – as long as we remain over the wave 2 low on the 60-minute chart – we then have to ask ourselves what could be a bullish resolution to this action that is not clearly impulsive to the downside right now?

The best I can come up with is an alternative I have added to the 60-minute chart in green. That would suggest wave ii is done, and we are working on wave (i) of wave iii of 3. However, I must warn you that I see this as a significantly lower probability as long as we do not make new all-time highs. I simply have an issue with the smallness of the relative size of this correction being all of wave ii, along with the shallowness of the pullback thus far, in addition to not seeing a clearly completed a-b-c pullback.

So, while I have to side on the lesser probability side of the scale with regard to the green count, I do also have to remind you that the last several years have presented us with equally small and shallow pullbacks before the market marched higher. So, we need to at least have this in the back of our minds for now. And, should the market rally to new highs, and we complete a 5-wave rally towards the 8000SPX region, then I would have to view this potential path with a much higher probability, especially if we see a corrective wave (ii) thereafter. And, should we then break back out over the high of wave (i) in green, this will become my primary, and place us in the heart of wave iii of 3 in yellow.

I know I am giving you a lot to think about right now. But, my point is to simply have you aware of the paths to take into consideration on both sides of the trade. Yet, for now, I am still looking lower to at least test the support box on the 5-minute SPX chart. And, a break out over yesterday’s high would have me considering that potential for now.