Hello Everyone,
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$SPX - Chart Link- upon further review of the potential LD, I took a look at closing prices only via a line chart and it supports the LD scenario that unfolded on the Nasdaq/NDX. This is supportive of the bearish view that the SPX has topped and is now undergoing a corrective move up over time. This view is also corroborated by examining the NYA and INDU charts.
My alternative is the the bottom was formed on Feb 24th (W-X-Y zig zag) which would imply a new high. The price action in the coming weeks will determine but it's wise to understand the importance of such views in preparing an intermediate term plan. The SPX .786 retracement level is 4673 which one can keep in mind as a potential target out of an LD.
Since last week both are in Sync for an upward move so let's simply keep an open mind and continue to trade level to level with this backdrop in mind.
A diagonal is a motive 5 - wave series, but NOT IMPULSIVE enough like a fully stretched
and extended wave series. The key difference between a diagonal 5 - wave and a normal
impulsive 5 - wave is that (1) there is an overlap between W1 & W4; (2) W1, W3 & W5 are
zigzags, not impulsive small waves themselves. Put it this way, it is like a teenager, you
can see the potential for them to express and showcase their confidence or self -
independence; however, physically and mentally, they are not there yet. Because of this
internal deficiency and weakness, diagonal is filled with zigzags — meanin g hesitancy,
confusion, uncertainty.
Diagonal can be spotted at TWO MOST IMPORTANT portions of a wave series: if it shows
up at the end of an impulsive wave, say W - 5, then we call it the “ending diagonal;” by
the same token, if it is at the beginning of a wave series, EWT named it “leading
diagonal.” Once you can identify five zigzag moves in a series, with each next wave is
higher or lower than the previous one in the same direction, and also, there is an overlap
between the 1 st wave and the 4 th wave, the n that MUST BE A DIAGONAL
AAPL and MSFT combined represent a total weighting of approximately 22.5% of the NDX. These generals are the two largest market cap stocks and certainly have a major impact on both the SPX and QQQ. As we have discussed ad nauseum, the indices are heavily skewed by a few big names (the Generals).
As you can clearly see in these charts, they ALL have formed Leading Diagonal Patterns (five overlapping waves) from their respective tops. This serves to support the notion that the market has topped. I know there is considerable talk about breadth thrusts bases upon last weeks' advance (and rightly so) and the associated bullish ramifications of such when looking out several months or more. However, we have a clear symmetry break in the longer term charts which also points to a lower high and a FOMC that is now in tightening mode (they haven't yet started to address their balance sheet which is a much larger issue). These IMO are valid reasons for extreme prudence in the coming weeks.
For a major market TOP, you really want to see confirmed bearish patterns across the major indices. The charts above are quite clear but I was troubled with the SPX candlestick chart until I examined a line chart showing CLOSING prices which did in fact support the LD premise. (See my post yesterday on the SPX Daily line chart).
Therefore, my primary view remains an LD off the top that suggest the market has topped with the first leg of the bear market LD completed with a Strong rally (as expected) out of the pattern as the start of a corrective move back higher. LD's typically have a LARGE retracement (even greater that .618 Fibs) so we should see a larger ABC type move unfold over the coming weeks that ultimately forms a LOWER HIGH prior the the next decline which would be a Nasty impulsive leg down. The SPX has an open gap (previously discussed) around
Since there remains a small doubt based upon the candlestick charts, the alternative (as I pointed out below in the SPX post) would be that the SPX bottomed in February as a larger Wave 4 with Wave 5 up to new highs in progress since the Feb low. For NOW, both views are in sync supporting higher prices in the coming weeks (bullish seasonality) BUT it's wise to remain grounded for the longer term based upon the EVIDENCE I have illustrated. See my comments below on the SPX chart.
Please take a moment to look at the trade ideas.
