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Market Update: Wave 4 in Place?

Last week I left readers with the idea that I was looking for a low for wave 4, of what I believe is an ending diagonal on the weekly chart of the SPX.

We got the gap down I suspected, although it did run a bit lower than I initially targeted, I was looking for around the 1660SPX area, it over ran that move, but like all good "flushes" they tend to squeeze out most traders right before it reverses.

Last week's rally was actually expected by us, as we were looking for wave 4 of the ending diagonal idea, however the strength was something that did surprise me, although with the bearish blogs proclaiming the end of the world again, its set up a great bear trap for most of the participants, thankfully not us.

This is exactly why I focus on price and patterns and not the news, most traders get bearish at the lows and bullish at the highs, we went into last week looking for a low as I still feel this market will see a new all time high.

Before

SPX Weekly Chart 1
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After

SPX Weekly Chart 2
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The powerful rally last week suggests that is still to be the case.

Short term there appears to be a 5 wave advance off the lows made last week, so we should see some sort of pullback early next week. Providing any decline remains above last week's lows at 1646, then I still think we can look higher and target 1735-1750SPX.

So readers/traders can look to buy into any corrective decline, ideally around the 1670SPX stops at 1646SPX.

With the large swings, I suggest using options as the market volatility is picking up and we are seeing large moves, and traders need to adjust to that.

Before

SPX 30-Minute Chart 1
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After

SPX 30-Minute Chart 2
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Only a reversal back under last week's lows would negate the set up.

An alternative idea I am also watching is that of a possible new all time high, but in 5 waves not in 3 as the prior idea would need.

SPX Weekly Chart 3
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This would suggest the advance is now in wave [5] and likely target above 1750SPX, again any decline would require to remain above 1646SPX.

I will leave it there for this week.

Until next time,
Have a profitable week.

 

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