With today's downside follow-through in the metals more bearish potential, we have now moved past the point of no return for the bears. They now have the bulls on the ropes, and the ball is in their hands. What that now means is that as long as the market does not move back over what is now resistance, we have a path for a much deeper correction.But, that does not mean those that are bullish should be resting on their laurels and automatically assuming that the market will fulfill the most bearish scenario. It does mean you remain on your toes and make sure that the resistance levels are respected.
I wish I had better news for the bulls, but I cannot say the market is instilling a lot of bullish confidence in me right now.You see, our Negative Nelly Box is still very much containing any upside surges. Moreover, as long as we hold over 31.47, we even have a potential for another rally to push us up to the top of the box. But, that would simply count as a bigger a-b-c corrective rally, and not change the picture much. However, if the market were to drop more immediately below 31.47, and follow through 30.70, then resistance becomes 31.50 and we have an initial signal that wave [iii] down is in progress.
To answer the question, that is what my primary count suggests as long as we remain over 4400SPX. But, what does today’s rally do to our overall view?Well, as I noted yesterday, the action of late has certainly made this region more complex. So, I am going to take you step by step again through my thought process.First, since the ES has a higher level for wave 4 than SPX, I have to wait until we exceed the 4480ES level (wave 4 in the ending diagonal) to confirm the ending diagonal has completed. Until that happens, we can still loop down again to test the 4400-4420SPX region.
There really is not a lot I have to adjust from the analysis yesterday afternoon, since we have not really moved much in the bigger picture. But, I am going to add a few more points.First, I want to again reiterate the risk/reward potential we have before us for as long as we hold the 4400SPX region. In fact, today’s action has even provided a small amount of positive divergence on the 60-minute MACD. So, I think it is reasonable to expect a rally from this support.Second, I have changed the alternatives just a bit.
As I write this update, we are now hitting our support box on the 5-minute SPX chart. Moreover, we are simultaneously striking the top of the zone on the 60-minute MACD at which the markets often bottom out.So, a little earlier today, I posted the following note:“We are hitting the top end of support. We now have about 50 points of risk, as we reside over the main support of 4400SPX. From here, we can rally to 4600-4630, with a smaller degree probability that we continue to 4900SPX from here. So, considering the 50 point or so risk, this seems like a reasonable long entry perspective with stops just below 4400SPX.
I am going to keep this brief, as Rosh Hashana just ended and I am going to be leaving for North Carolina.But, needless to say, the only prayer the bulls have now is a leading diagonal. And, if is that is what your primary trading plan is based upon, then I suggest you stay very close to your screen, as you may have to adjust rather quickly.First, as many of you know, I do not rely upon leading diagonals for strong trading cues since they can just as easily be a corrective structure. And, even in this case, we would still need a high over last week’s high to even consider such a potential.
On any day of the week, one is always able to find some ridiculous presentation by the media and market pundits as to why the market is moving.For example, recently I saw the title “Stock futures tick higher with Biden infrastructure plan in doubt.” Let that sink in for a minute. Do you see how ridiculous and contradictory this sounds? Yet, I am quite certain some readers will comment below and provide us with the mental gymnastics needed in order to “splain” how this makes sense.Next, I saw how the pundits blamed a $100+ gold decline upon the FDA providing emergency vaccine approval to battle COVID. Yet, when the same vaccine received full approval last week, gold rallied $25.
Yes, folks, this is what bull markets do. They continue to grind and grind higher until they complete their respective wave, pullback sharply to throw a few people off the bull-train, and then continue on their path higher. That is exactly what we have been seeing for months.But, there is nothing I can add to yesterday’s update. And, since the micro charts are really not providing us with much clarity, there really is nothing I am able to add to our understanding of where we currently reside.
Thus far, the bulls are holding supports on the pullbacks we are seeing in the micro structures in the metals charts. In fact, silver has a very nice bullish potential micro setup on the chart, which can provide us with a really nice rally, and even potentially target the pivot overhead with the type of extensions we often see from silver. As far as gold is concerned, we still need to break out through the resistance that has been keeping us in check for the better part of the last two weeks.
There really is not much for me to add to yesterday’s update, and the analysis I have been providing of late. So, I will simply reiterate certain points that are important at this time.Currently, support is at 4468SPX, followed by 4400SPX. Below that, we have the ideal target for wave 4 in the 4240-70SPX region. And, we have a major floor in the market between 4100-4165SPX.Our next micro resistance region is 4550-55SPX, with 4600-4630SPX above that. As long a we remain below those resistances, I still very much expect a wave 4 pullback towards the ideal target in the 4240-70SPX region.
Since the current primary count is rather clear to me, which is that we are rallying to complete a more extended wave 3 pointing towards the 1.236 extension of waves  and  in the 4600SPX region, it forces me to come up with an alternative count. And, since I have absolutely no reasonable bearish alternatives on the charts, the only bullish alternative I am able to come up with at this time is really uber-bullish. But, it is simply an alternative right now, for which I have no conviction at this time.
The market continues to grind up higher towards that 4600SPX region. Yet, I have wanted to see a b-wave pullback before we continued on to 4600SPX. However, the market does not always provide us with our standard pullbacks, especially in a strong trending bull market.With that being said, as long as we remain below 4550SPX, I am still going to reasonably expect a b-wave pullback. But, if we continue to grind through 4555SPX, then I have no choice but to assume we are moving directly to 4600-4630SPX to complete wave 3.
With today’s downside move, I simply cannot count a clear 5-wave structure. That leaves us with a corrective pullback. And, that begins to make the bullish case a bit stronger, and that wave 3 has not yet completed.But, before I am willing to jump into that came, I want to again highlight the IWM. If you remember what I said the other day, the 226 region is an a=c point off the recent lows in the IWM, and it is a level of utmost importance right now.
The best sports example I can come up with right now is that the bulls are down 3-0 in a four game series. And clearly, the next game is a must win for them.This week, we got the bounce we wanted to see, but it would only be half the ideal bounce I wanted to see. Thus far, we have only completed what I would consider an a-wave in a corrective rally, or possibly wave [i] of the next bullish move in GDX. And, yes, GDX is our clearest chart to follow through this progression right no.That means that today’s pullback was a b-wave, or a wave [ii]. You can see this on the 60-minute GDX chart.
I am writing today’s update a bit earlier since I will be presenting at the MoneyShow this afternoon from 2-3. As the market has squeezed a bit higher now, based upon some other signs I am seeing, there is still a bit higher we can extend in this move off last week’s low. But, that changes nothing in our overall view, as it remains the same.We still need the next decline to provide us our guidance as to whether the market wants to extend wave 3 to 4550-4600 or if we are indeed completing a b-wave top, with a c-wave decline to come next down to the 4240-70SPX region.
After the sizeable move higher through resistance yesterday, the market has taken a breather today. And, while the SPX may still try to push a bit higher before this rally runs its course, not much has really changed in my perspective.It will still take the structure of the next pullback to tell us if the market intends on extending wave 3 to 4550-4600SPX in the coming weeks, or if this is indeed a b-wave, with a c-wave decline the next move for Mr. Market. As I outlined yesterday, if the next pullback is clearly corrective, then we will prepare for the extension to 4550-4600SPX, and I will adjust my primary count accordingly.
Within a bear market, or even within a bigger corrective structure, when we see the type of a-b-c potential corrective set-up the market provided us into the close on Friday, 70-80% of the time you will see a downside resolution. However, when we are in a strong bull market, it is not advisable to short these types of set-ups, unless they confirm their intentions to the downside.Clearly, the market took the other side of this trade, and broke over resistance and provided us with the marginal higher high I expected if we saw such a break over resistance. And, we still may push even just a bit higher before this tops out.
That four-letter word is DOWN. In fact, most of the drops we have seen throughout the year do not seem to last more than a few days. Can this time be different?Well, if wave 3 has indeed topped, and I think it has since broke below the 4373SPX support in the overnight session, then we should be taking a bit more time than just a few days to complete wave 4. I want to re-print an alert I posted late yesterday afternoon:“Bigger picture time. If wave 3 has finally concluded, then let's look at the potential path for wave 4. But, please remember, trying to nail down the exact path during a 4th wave is akin to throwing jello for distance.
Over the weekend, I highlighted the GDX chart, and outlined a VERY important support level, which is highlighted by a blue box on the attached 60-minute chart. Today, we have struck that support. Moreover, it looks like we are completing a 5-wave move down into that support from the high struck in early August.Now, if my micro count of 5-down is correct, it means we should see AT LEAST a bounce in wave [ii] in red. And, that is the more aggressively bearish pattern. And, personally, I think I am going to be adding some hedges at the wave [ii] target zone for protective purposes.
With the break down below yesterday’s low, the market is now in a precarious posture. Whereas before there was a reasonable path towards 4550SPX, I cannot say I see a high probability path at this time to that region. Of course, it may resurrect, but for now, I am not optimistic. Moreover, keep in mind that we are expecting wave 3 of  to be topping out, and wave 4 to be commencing. But, we still do not have a strong indication that the upside has run its course.The reason I am writing this update a bit early is that there is a slight adjustment I need to make to the analysis I presented over the weekend, which was reiterated yesterday.
As difficult as the market action has been since May, I want you all to prepare yourselves emotionally for what will likely be another several months of difficult trading. You see, as the market grinds its way higher to complete wave 3, the structure with which we are likely developing this wave 3 top is still overlapping and will continue to be difficult. Couple that with the impending 4th wave pullback, which are never easy to navigate, we are setting up for a difficult upcoming several months.
As the market began its historic rally off the March 2020 low, many were convinced that we had begun a bear market. In fact, I witnessed many people posting about short trades in which one cannot lose during that rally. The common perspective was that due to the highest Covid death rates being reported during the spring of 2020, economic shutdowns being seen all over the country, and record unemployment being reported, there was no way the market could continue to rally. It was simply impossible in most people’s minds.Yet, continue to rally we did.
As I explained in the video update this morning, the bullish case in the metals is not dead yet. Rather, I would say it is on life support at this time.You see, the current decline can still be a wave [ii] in silver as well as a wave ii in GLD, as both can still count as a rather reasonable a-b-c structure, yet much deeper than I would prefer to see.However, I cannot say the same for the GDX. In fact, the GDX looks like a 5-wave decline off the high struck in May.
I am quite proud to announce a new addition to our all-star StockWaves team. Currently known as “LenP” in our trading room, Leon Podolsky will be working with us to develop algorithms for a hotlist of the best set ups within the stocks analyzed by our StockWaves analysts. This hotlist will be part of a premium add-on service to Stock Waves that we will launch in the coming months.With a BSE in Computer Science from Princeton University, and an MBA in Finance from the Wharton School, Leon is a serial entrepreneur with more than 25 years experience holding CTO roles in numerous data and fintech startups.
by Avi Gilburt - 1 month ago
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