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SPX, BKX, NYA: Time for a Little Caution, Though No Reason to Get Too Bearish Yet

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Fractured markets suggest a correction, but it's too early to say how deep.

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The updates have been suggesting higher prices all month, and the waves are still pointed upwards for the moment, but I do want to show a few charts that act as caveats and suggest some degree of caution is in order. The equities markets have remained a bit fractured, in the sense that related markets often seem to be suggesting completely different things, and this is still making it difficult to predict exactly where we are in the larger picture. I continue to lean bullish, but a little caution is now in order.

To illustrate the fractured nature of things: The S&P 500 (INDEXSP:.INX) is suggesting a smallish correction that holds above 1451, then on to new highs. But the NYSE Composite (INDEXDJX:NYA) and Philadelphia Bank Index (INDEXDJX:BKX) are both hinting that a larger correction may ensue. There's simply no way to know for sure which it will be at this phase; we're too close to the recent highs to project much to the downside.

Let's start with the short-term SPX chart. This chart shows a structure that is almost-certainly a three-wave rally into the 1472 print high, which suggests an expanded flat is unfolding (or already complete). The expanded flat seems to connect the rally from 1451 to the wave that is unfolding now, which suggests the first part of the rally is simply wave (1) of (5) of the larger wave 3.

Note that the corrective fractal could be complete at the red wave A/alt: (4) label, in which case higher prices are due directly; this appears less likely, but trade beneath 1465.69 is required to confirm the 1461 target. The only way to eliminate the bullish (1)/(2) potential of this chart is for the market to break below 1451. Compounding the issue is the fact that the waveform from 1451 is exceptionally weird.


Click to enlarge

Moving out to the 30-minute SPX chart, we see how this wave fits into the bigger picture (labeled as red (i) (ii) and (iii) on this chart). Note the alternate count that ALL OF wave 3 has completed.


Click to enlarge
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No positions in stocks mentioned.
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