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SPX and NDX: Will Bulls Seize This Opportunity?


This market is in a perfect position for bulls to launch a strong rally, but we'll also discuss what to watch to determine if bears are gaining control.


While I'm favoring an intermediate bullish resolution, the bears do still have hope. I've noted 1434 as the key bullish pivot for some time, and the market was unable to sustain trade above that zone, which keeps bears in the running for the time being. Accordingly, I'll update their chart with the bear potential. While I still consider bears the underdog here, the market always reserves the right to change my mind.

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A chart that appears to be a problem for bears is the Nasdaq-100 (INDEXNASDAQ:NDX). The NDX has formed a fairly clean five wave rally off the November print low, and that does suggest trouble for bears. It's also now in a zone where a meaningful bottom could form. If the count shown below is correct, this represents a low-risk buying opportunity with the potential for a great deal of upside.

Conversely, a sustained breakdown of the blue base channel would at least open up questions and cast doubt on the bulls. It wouldn't necessarily be the end of the world for bulls over the long-term, but it would complete a pattern known as a double-top for the short-term, and that's not the type of pattern one usually wants to get in front of on the long side. A double-top breakdown (sustained trade beneath the lower blue line) would suggest about 70 points of decline from here.

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In conclusion, the market moved from the inflection point noted on Wednesday straight into a second inflection point on Friday. This is an important test for the market. So far, the decline has simply reached normal corrective territory, and the pattern looks roughly complete -- so I think odds are good that the bulls will grab the ball and run from here. A sustained breakdown would change my mind. Trade safe.

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No positions in stocks mentioned.
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