The S&P turned lower hard this morning as it really needed to do if the wave count calling for a wave 3 is correct. Time is really running out in my view for wave 3 to get started, so today was quite encouraging. Unfortunately we couldn't quite get a completed 5 wave decline today, and instead are left with a 3 wave drop so far. But all that's needed tomorrow is a break below 1092.18, which is just a little more than 2 points away from current levels, to make the decline from Friday's highs a 5 wave drop. A 5 wave drop will put us on the right track to calling a wave 2 top. This weekend's post discussed the MACD histogram rolling over on the hourly chart (click here for chart) and the siginificance of this event according to similar past setups (click here for entire post). Although it's not a great timing tool, today's action proved that at least this time it was a reliable indicator in identifying weakening upside momentum. In addition to this, NYSE internals were fairly bearish as total volume barely broke above 1 billion shares, but did finally make it to the 13 day moving average which is something the bulls could not do through most of wave 2, and 86% of today's total volume was to the downside. So if the market is turning lower in wave 3, the wave evidence, timing, and internal strength are all there for it to do so.
So where is the confirmation? Well a break beneath today's low at 1092.18 will make 5 waves down from the highs, so that's step one. Step 2 would be for it to break below the wave i high at 1080 to eliminate my bullish alternate count (see below) so I can feel better getting a bit more aggressively bearish. But ultimately, an impulsive break beneath 1062 will confirm that wave 3 is underway. So those are the levels that will steadily increase the evidence that wave 2 has topped, and wave 3 of (1) of [3] or C is underway.
ALTERNATE S&P Cash Index Bullish Hourly Count
Above is my less likely bullish count. The reason it's less likely is that if correct, it's going to be such a long and wide wave C of 2 compared with the proportions of the other waves of the same degree. But it's still a possibility so I want to keep it on the radar to keep myself honest while trading. Even if this count is correct, it suggests just one more new high above 1112.42 before topping and reversing anyway. So this count is bullish in the short term, but still medium and long term bearish.
A break beneath 1080 will eliminate this count from contention because it will creat overlap between wave iv and wave i which is not allowed in EWP.
Currencies
Unfortunately today I was stopped out of my GBP/USD short trade at a 5 pip loss. What's more frustrating is the fact that both the EUR/USD and the GBP/USD stopped and turned lower almost immediately after I got stopped out. I guess that's the price to pay to reduce risk sometimes. I currently have no currency positions in at the moment. But that may change shortly.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
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