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SPX and INDU Updates: Rally Due for a Breather?

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Monday's potential turn level stopped the rally -- in this update, we'll look at price levels that should help signal if the correction will continue deeper.

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The next chart shows why I slightly favor the idea of a larger correction here. SPX, Russell 2000 (INDEXRUSSELL:RUT), Nasdaq (INDEXNASDAQ:.IXIC) and NYSE Composite Index (INDEXDJX:NYA) have all back-kissed the underside of major trend lines, and it would be unusual for them to simply power through without more of a pause.


Click to enlarge

Not shown in this update: The SPX bear count is still alive and well -- however the chart is essentially unchanged since our last look, and a bit redundant to publish with this update. Please refer to Monday's update if you'd like another look at that chart.

I would like to take a closer look at the Dow Jones Industrials (INDEXDJX:.DJI), largely because I spent more than a few hours trying to break down the 2-minute chart (second chart).


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Below is the two-minute chart, which may take a few minutes to wrap your head around. This count is incredibly complex, and that raises the probability that it could be simply "unknowable" -- so take this chart with a grain of salt and for educational purposes.


Click to enlarge

In conclusion, the odds appear reasonable for a larger correction in the near future, though the shape of the correction could still take a few different forms. The simple view is that 1400-1403 is important support to stave off a deeper decline... however, the INDU chart above raises the specter of a confusing, whippy, and ugly trading range -- fortunately, this can largely be ruled out if INDU sustains trade below yesterday's low in the immediate future. I remain marginally bullish on the intermediate term. Trade safe.

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No positions in stocks mentioned.
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