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Is Santa Bringing Coal for the Bulls or the Bears?


The market remains poised at an inflection point, and what happens next could have far-reaching implications for the market.


Next, a breakdown of the SPX one-minute chart, which illustrates that -- at this exact moment -- even the very short-term is up for grabs. A new high would give bulls an impulse wave up, and suggest at least a short-term continuation higher, along with the possibility of a positive trend change. Without at least a marginal new high, though, this is a corrective rally and we would expect to see it fully retraced.

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The key underlying thesis behind Elliott Wave Theory is that the market moves in five waves (called "impulse" waves) when it's traveling in the direction of the larger trend, and in three waves (called "corrective" waves) when it's moving against the larger trend. The Dow Jones Industrials show a pattern that's slightly different than SPX, and a little more clear-cut as either a large ABC corrective rally, or wave 4 of an impulse with wave five-up still to come. A new swing high here would give bulls a serious edge for the long-term, while trade beneath 13010 would be the first key toward giving bears control.

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Finally, I want to wrap up this update with an updated Nasdaq 100 (INDEXNASDAQ:NDX) chart. While the rally since November does count best as a five-wave impulsive form (suggesting the larger trend is up), I rigorously challenged my own assumptions during the weekend in order to see if the bears had any hopes for another outcome.

Indeed, at times it stretches one as an Elliottician to see the wave structures that fall far-off the beaten path -- but with a little outside-the-box thinking, there are, in fact, two potentials which would be favorable to bears. The first is near-term bearish, but intermediate bullish (black); the second is intermediate bearish (green). I've outlined the key levels which would open up each respective potential.

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In conclusion, I continue to give the slight edge to the bulls until proven otherwise, but the rally is in a vulnerable position. What happens over the next few sessions is likely to have ramifications for at least several weeks into the future, and possibly much, much longer. In the meantime, have a wonderful Christmas -- and trade safe.

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No positions in stocks mentioned.
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