Beginning this discussion with the count from Thursday's 3:00pm low, SPY looks to have completed four waves of a sequence to the upside. In technical parlance this would be described as an expanding triangle, and my model gives a Wave e target between 395.7-398.2.
For the last few days I have been discussing the re-emergence of a scenario I had relegated to alternate status that now seems to be playing out. As a quick recap, I have counted three waves down from the February 2nd high of 418.31. I had then completed a count showing the March 13th low of 380.65 as the completion of a 5 wave sequence from that high. The alternate scenario entails some complex corrective waves forming from the Wave 3 low. The structure of these corrective waves consisted of the third wave of the correction being longer than the first, and the 4th wave terminating lower than the origin of the first wave. The structure from the Wave 3 low, into the March 13th low contained two such corrective waves, with one possibly having completed Thursday at 399.29. These corrective waves have a very bearish connotation unless it reverses itself and moves above the high of the third wave.
Counting from Wave 3(Red), the chart shows three waves up, labeled as Waves A - B and C. From there we have a move down to what I have labeled as Wave A(Green). Originally I had labeled that as Wave D(Red), which may still be the best count. That would infer a move below 377, which would be Wave 4(Red) from 418.31, with Wave 5 to follow.
The count displayed above would be even more bearish. Taking into account my current target for the current short term wave of 395.7-398.2 would indicate a move below at least 359, depending on the exact termination point of the wave.
Another possibility is that Wave B(Green) is actually a wave A. This would allow SPY to move above the critical 401.48 level, and perhaps reverse the negative connotation of the current wave structure.
We now have some clear levels to watch. If the current short term wave does terminate between 395.7-398.2, and is followed by a move below 390.54, we could see much lower prices in the near future. A move above 401.48 could negate the current scenario.
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