Fall of Icarus...
With Friday's lower low, I believe we are in a bonafide correction and that we are either in wave (iv) (could still be in a flat) or (v) of A of 4. The Gann resistance arc rejected wave 3 just as it did in Feb 2018.
1) Looking for this correction to last at least until Feb 19-20 or so. Note the 13WMA (orange line)... a breach of it typically results in it flattening out and in a correction of AT LEAST 200% the distance between the high and the level of the 13WMA. The Dec low of 3070 is a good target to start with. I'm expecting a zig zag down and not a complete tank here, despite the virus fears earnings have been pleasant.
2) I'm expecting some kind of ABC down here... I don't expect A to go any lower than the .382 retrace of wave 3 at around 3155. This also happens to be the intersection of what looks like a wedge formed by the 1x1 and 1x3 Gann angles (green lines) so expecting a little bounce from this throwover there to start B. Good short term scalp here IMO.
3) I don't think B will get any higher than the 20DEMA (blue arrow). Past corrections usually result in the 20DEMA taking on the slope of the 1x4 Gann line and any strength above it should be shorted until the last wk of Feb. B will probably mirror price action during the Iran attack stuff.
4) Bullish scenario: If A doesn't reach 3155 and starts bouncing earlier, 3155 could very well be the end of the correction since wave 4s typically don't retrace more than 38.2% of their respective wave 3s. The entire rally from the Dec 2018 low could very well be a diagonal rising wedge. Remember, ending diagonals are 3-3-3-3-3-3 wave forms so we could get an ABC up to end wave 5 (which would probably confuse the shit out of everybody, exactly what SPX excels at).
5) Bearish scenario (shown in chart): Wave A concludes at 3155, bounces up to around the 20DEMA, then dives back down to the bottom of the channel. In that scenario, I wouldn't be surprised to see it dip below 3020 to run stops. The wave 2s drawn this summer are IMO all running flats, where the wave 1s concluded around 2950, the previous sep 2018 ATH. If that level fails to hold, expect MASSIVE selling. Very low chance of this happening IMO.
6) Ultimately we'll have some kind of H&S pattern here, where A bounces should tell us much more in the coming days.
7) Fundamentally speaking the virus could be a fake panic but really that's irrelevant. The issue is that the stock market is severely overbought and ppl are basically looking for a reason to sell. And unlike the trade war, a potential pandemic isn't something that can be tweeted away. A look at the volume shows that the recent throw-over in December was extremely lightly traded (even the recent selloff is light) With the Fed pulling back on "non-QE", impeachment, the case for bearishness can simply be explained by the absence of bullishness.
1) Looking for this correction to last at least until Feb 19-20 or so. Note the 13WMA (orange line)... a breach of it typically results in it flattening out and in a correction of AT LEAST 200% the distance between the high and the level of the 13WMA. The Dec low of 3070 is a good target to start with. I'm expecting a zig zag down and not a complete tank here, despite the virus fears earnings have been pleasant.
2) I'm expecting some kind of ABC down here... I don't expect A to go any lower than the .382 retrace of wave 3 at around 3155. This also happens to be the intersection of what looks like a wedge formed by the 1x1 and 1x3 Gann angles (green lines) so expecting a little bounce from this throwover there to start B. Good short term scalp here IMO.
3) I don't think B will get any higher than the 20DEMA (blue arrow). Past corrections usually result in the 20DEMA taking on the slope of the 1x4 Gann line and any strength above it should be shorted until the last wk of Feb. B will probably mirror price action during the Iran attack stuff.
4) Bullish scenario: If A doesn't reach 3155 and starts bouncing earlier, 3155 could very well be the end of the correction since wave 4s typically don't retrace more than 38.2% of their respective wave 3s. The entire rally from the Dec 2018 low could very well be a diagonal rising wedge. Remember, ending diagonals are 3-3-3-3-3-3 wave forms so we could get an ABC up to end wave 5 (which would probably confuse the shit out of everybody, exactly what SPX excels at).
5) Bearish scenario (shown in chart): Wave A concludes at 3155, bounces up to around the 20DEMA, then dives back down to the bottom of the channel. In that scenario, I wouldn't be surprised to see it dip below 3020 to run stops. The wave 2s drawn this summer are IMO all running flats, where the wave 1s concluded around 2950, the previous sep 2018 ATH. If that level fails to hold, expect MASSIVE selling. Very low chance of this happening IMO.
6) Ultimately we'll have some kind of H&S pattern here, where A bounces should tell us much more in the coming days.
7) Fundamentally speaking the virus could be a fake panic but really that's irrelevant. The issue is that the stock market is severely overbought and ppl are basically looking for a reason to sell. And unlike the trade war, a potential pandemic isn't something that can be tweeted away. A look at the volume shows that the recent throw-over in December was extremely lightly traded (even the recent selloff is light) With the Fed pulling back on "non-QE", impeachment, the case for bearishness can simply be explained by the absence of bullishness.
Note
Bears should stay vigilant here and pay attention to how the price action responds at the 3200 area. There still remains a potential for wave 4 to be a running flat that retraces back up to 3250, or wave B could retrace all the way back up to 3330 for a double top. A break of 3195 would confirm that A is almost over. NDX remains visibly stronger than SPX right now and the potential for a double top wave B is still likely. I would not chase this selloff and prefer to wait for this structure to develop further. Already seeing bullish divergence on the 4hr RSI and there's a bullish gartley setup along w/ the 13WMA which usually provides some kind of bounce around 3200. That said, I would definitely not hold longs overnight given the potential for negative virus news coming out of China.
Note
GOLD has finally hit its 20DEMA. I'm a buyer here. Will likely take some puts on SPY today as well.Note
Printing ATHs because I guess they must've found a cure for the virus and it's gonna be contained according to JPMorgan... They probably should've given the cure to the doctor that discovered the virus... he died today. A waterfall by mid March would not surprise me at this point and I feel like we're in the middle of a massive pump and dump. Watch volume on futures, even last wk's selloff was incredibly light. Once volume picks up that should be your signal. Watch 1.236 extension around 3360.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.