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SPX Update: New Lows on Deck?


It appears the preferred count continues to track well, and new lows are now expected.

Yesterday, Bernanke let the market know that good news is bad, as continued economic improvement would mean the Fed is likely to start tapering asset purchases later this year, and could end purchases entirely by the middle of next year. This is exactly what the equities market did not want to hear, since without the Fed's inflationary money printing, the actual cash value of the S&P 500 (INDEXSP:.INX) is approximately twelve dollars and fifty-eight cents.

The dollar, on the other hand, was quite excited by this news, and rallied straight up in a rocket launch.

Interestingly, I suspect this scare will be the push needed to drive equities to the lower low I've felt the charts were suggesting was more likely to mark the wave iv bottom. I think this press conference will embolden bears to step out of their caves for a bit, but the bottom line with Bullnanke's statements is that the QE money will still be flowing (for the time being), and that means continued liquidity for equities.

Greed is a powerful emotion, though, and I think it's more likely that the dip will still be bought, as there is yet no definite end in sight for the QE program. There are hints it "may" end "if and when" the economy improves. Of course, anything's possible, and maybe just the thought of QE ending will cause a rush for the exit since no one wants to be the last one holding the bag. But in my opinion, the charts still suggest the final long-term high isn't in yet.

But they do suggest that the much anticipated wave (2) high is. I've seen a lot of confusion over how to label the recent rally, and I believe it represents another extended fifth wave, with a compressed (iv) and (v). (When you trade Forex as much as I do, you learn to look for and recognize extended fifths.) Wave (2) appears to have topped about 3 points shy of my "perfect world" target.

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This wave looks like a textbook expanded flat with an ending diagonal c-wave in NQ (Nasdaq Futures).

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The hourly chart continues to track well:

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In conclusion, I believe it's quite likely that the wave (2) high is now in place. Trade above 1654 would, of course, call that into question, but barring that, I'm now on the lookout for new lows. Keep in mind this is anticipated to be a third wave decline, which means it should be a strong trend, and dangerous for dip-buying. Trade safe.

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