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SP500: The Magnitude of a Trend Line

The lower high established at the November peak can be the first step of a trend reversal.

A new bearish cycle will be confirmed if price breaches the August low establishing a lower high.

If this is the case the risk of a retracement towards the range 1574 - 1553 would substantially increase.

In the mean time as long as SP 500 does not reclaim the 10 mma which today stands at 2041 the trend is pointing down.

S&P500 Monthly Chart
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A trend line that connects the October 2014 and the August 2015 lows is probably the line in the sand. If the trend line is breached we could make the case that it is the neckline of a Head and Shoulder. The measured target is located at 1611.

S&P500 Monthly Chart 2
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In the weekly time frame the Head and Shoulder can be seen clearly.

S&P500 Weekly Chart
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If the neckline holds SP 500 could be carving out a Bullish or Bearish Triangle:

  • Bearish Triangle:

S&P500 Bearish Triangle
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  • Bullish Triangle:

S&P500 Bullish Triangle
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Elliott Wave wise the Triangles scenarios can only pan out if the decline from the November peak unfolds a 3-wave down leg.

So far, in my opinion, from the November "lower" high we can count a 3-wave down leg in progress. The wave 3 is probably not done yet

Once the wave 3 is in place if bulls are not able to reclaim the "overlap" line at 2005 odds should favor an impulsive decline which will most likely breach the neckline of the H&S opening the door to a large retracement.

S&P500 Daily Chart
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