When the ES/SPX failed to follow through in a larger wave  potential set up today, it brings me back to an old saying about the market: When the market does not follow through on a set-up, it is often telling you something quite clear.
When I was young and first starting out in trading, if the market would come to a point at which I thought it would turn, I was often quite impulsive and impetuous, so I would aggressively short at that point. And, since I was following analysis being provided by others, I would often find myself in the hole with those short trades, as the analysis I was following often turned out to be wrong (there are a lot of bad analysts out there).
It took me a while until I learned that most of the analysis I would follow only had a bearish bias, which is why I lost a significant portion of my trading account.
As we came into 2020, my primary expectation was for the stock market to top out, and provide us with a c-wave decline towards the 2200SPX region. And, when the market exceeded my upside target in the 3000/3100 region, it certainly made me question that potential.
If you were following my analysis closely, you would know that week after week during the first 2 months of 2020, I was highlighting the extreme divergence we were seeing between the SPX relative to the IWM and the EEM. And, when the SPX exceeded the 3200SPX region, I even outlined what it would take for me to abandon the bearish expectation being driven by the EEM and IWM charts.
Having recently struck within pennies of the ideal target I outlined over the last few weeks in the 3234 SPX region, the market today confirmed our expectations for a larger degree pullback to take shape.
When you consider that the last 30% of the rally has the most risk, and that even if the market does complete all 5 waves up into the 3200-3300 SPX region it will still pull back below 2900 in wave ii later this year, you have to really consider whether you, as an investor, wants to take that additional risk.
Over the last week, the market did a wonderful job in taking us up to the 2890 region target on the S&P 500, and testing the bears. And, as we have been highlighting, that would be a good place to de-risk a bit, after we caught the bottom in the SPX back in March.
With the market following through to the downside as we generally expected in this set up, we are approaching an important cross roads which will determine if we have a lower low yet to be seen, which is our primary count, or if the bottom has already been struck.
by Avi Gilburt - 10 months ago
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