Friday (March 21) saw a bearish reversal day as prices opened higher and made a new high, then reversed to close lower. Normally a day like that has some follow-through on the sell side. The new high in the S&P 500
(INDEXSP:.INX) has created a potential problem for bears on the longer time frames, though, as it strongly hints at an incomplete upward wave structure. There are a couple ways we can get there, which I'll outline below.
I've noted the 1883-84 zone as resistance more than a few times in the recent past, and the market demonstrated that it needed a bit more coiling before breaking through. The form this coiling takes will tell us a lot about how strong the rally will be once resistance is reclaimed. The chart below outlines two options in detail:
1. In black and blue is the option of an expanded flat. The minimum expectation for an expanded flat is a decline south of the black A wave low at 1839. If the market bottoms there, that would likely mark the bottom of wave ii of v and lead to a strong rally toward the high 1900s in iii of v. The intermediate structure allows for wave C to be one degree higher and lead to a much deeper correction, but we don't want to get too far ahead of the market, so we'll cross that bridge if and when we come to it.
2. In green is an ending diagonal. The ending diagonal is near-term bullish, but much more bearish on an intermediate basis. This means that, ironically, bears want to see the market rally sooner rather than later.
Both of those counts anticipate the market will do some backing and filling here before rallying much higher. However, in the event of an immediate rally that overtakes 1908, then it's probable the market is already in the midst of wave iii of v.
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For the long-term picture, SPX has remained undecided and continues to keep its options open. The question has been unchanged for nearly a month: Is the fifth wave completing, or will it extend? SPX has refused to give a definitive answer so far.
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Speaking of long-term charts, on Friday, the Philadelphia Bank Index
(INDEXSP:BKX) captured its long-term target of 73-74. This target dates back to nearly a year ago, and its capture represents the potential of a nearly complete long-term correction in BKX. Keep in mind that this is simply a potential to be aware of at this stage -- this market hasn't broken any key downside levels (obviously, since the target was just captured), or given any signs of doing so yet. In fact, the 10-minute chart suggests it's unlikely the final high is in for this market. Nevertheless, it's worth watching -- and if you were long BKX since 59-60 (or lower), then the target has been captured.
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In conclusion, bulls have now created a wave structure that strongly suggests there will be new all-time highs in the market's future. What happens in the next few sessions will help detail how soon and how much higher. Trade safe.
Follow me on Twitter while I try to figure out exactly how to make practical use of it: @PretzelLogic.
No positions in stocks mentioned.
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