Today, the market had a set up early in the morning for a strong rally. I outlined that potential in the RTY before the open. However, the market was not able to capitalize on that set up, and broke down out of its recent uptrend channel.
While I view trend channels as the crudest form of technical analysis, I do have to note that this break down out of the channel does evidence a certain amount of weakness in this region.
As I mentioned over the weekend, we have enough waves in place off the 144.50 recent lows in IWM to consider the structure completed. While the internal structure still suggests that we can rally higher, today’s weakness has me questioning how much more strength I am able to reasonably expect.
For now, our parameters have not changed. As long as we remain over 150, I can still look higher, but I am now questioning whether we can exceed the 153 region in the IWM.
As far as the SPX is concerned, I am still on the fence as to whether it has completed its wave (3) high, and if this current rally is part of an expanded b-wave structure. We have enough waves in place to consider all of wave (3) as completed, but it is clearly within the realm of possibility that the yellow count may try to push us higher for a more extended wave v to complete wave (3) a bit higher into our long term target box.
However, should we see a strong break below the 149.50 region, it opens the door to the market having topped (as shown on the 60-minute wave count), with a break down below 144.50 confirming that we are likely heading down to the 133 region in wave (4) in the IWM, and 2330-2400 in the SPX.
So, as we head into December, I think caution should clearly be exercised by anyone who is looking to the long side aggressively. We are completing a 5th wave in the 5th wave of a 5th wave in wave (3) off the February 2016 lows. So, while there still can be some more strength seen in price, we are clearly closing in on a top to wave (3), if we have not already struck that top.