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Bulls Vs. Bears: Detailed Charts Projecting the Long-Term Outlooks

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In the recent past, I've discussed the importance of the current pivot zone, but these charts drive the point home and discuss what to look for.

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The first chart is the long-term bull case for the S&P 500 (INDEXSP:.INX), along with two potential targets. The bullish interpretation of the pattern is that a series of high-degree first-wave advances and second-wave corrections has formed. This would put the market within the belly of a third wave at Minor degree, and third waves are extremely powerful – as I've written about all year, the rally we've experienced since January began has undoubtedly been a third wave advance (though there remains some question on where to locate that rally within the long-term count, hence today's discussion).

The chart below outlines, in broad strokes, the expected result if this is indeed the middle of a high degree third wave rally. There are two ways to view the current structure bullishly, and they are noted in the middle breakout box (blue), and the lower black box. Either of these interpretations has a minimum expected target in the 1700's.

Note the series of 1's and 2's leading into the present wave (I refer to this pattern as "nested" first and second waves). This count probably has to be given the edge, unless and until the market begins to indicate otherwise -- but, going back to our earlier discussion, I would be cautious about too much "conviction" here, as we won't know with high certainty until the market clears this inflection zone.


Click to enlarge

The bear interpretation outlines an ending diagonal C-wave, which would complete the larger (B) wave at Cycle degree. Due to the scale of these waves, we wouldn't know this count was playing out immediately, but relative to the big picture, we would have a great deal of advanced warning. Key overlap of the last swing low would be a huge red flag to the bulls -- in fact, at this point, we probably don't want to see the market sustain trade beneath the 1450 area.

This wave count is exceedingly bearish from a long-term perspective, as it suggests the entire rally since 2009 will be retraced.


Click to enlarge

Finally, a quick update to the SPX hourly chart. On January 30, I warned that SPX was due to enter a chop zone, and the market has since lived up to that expectation. We're still within the chop zone, and it's simply unclear to me at the moment if blue wave 3 has completed a few points shy of the target zone, or if it still has farther to run. The wave count has gotten us this far and performed exceptionally well for the entire year, but every system reaches pivot moments when things become a bit fuzzy until the market clarifies its next move. This is one of those pivotal moments and at times like this, trend lines become high value.


Click to enlarge

In conclusion, the market is balanced at pivots across several time frames. For the near-term, the market remains in a chop zone. For the intermediate and long-term (assuming I forget what I think I know about the world), I have to continue favoring the bulls -- though the gravity of this inflection point tells us this is no time for complacency. As a trader, all I can do is work with what I see in the present, but we all know that things can turn on a dime in this market -- so I'll update the long-term outlook periodically, particularly if odds seem to be shifting into the bears favor. Trade safe.

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No positions in stocks mentioned.
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