Has the upward trend of wave 5 ended, or is there a final thrust awaiting to once again frustrate bears? A review of where we've been and a longer term perspective is now called for. This week's chart includes expectations for what follows wave 5's terminal point.
A pair of illustrations is provided for you to assess risk vs reward in the event of either scenario. In short:
1. Has wave 5 already ended at September's top, and are we currently in wave "b" of the correction following wave 5 ending in September? (To B)
2. Is wave 5 still underway and heading to the ideal Fibonacci levels at 3039-3115, to then be followed by a corrective wave? (not to B, to 5)
A notional target for the expected correction helps with assessing risk vs reward for both cases. That correction's target is in the area of 2558, or 13% from the September high (2940) and is illustrated with a,b,c patterns in yellow (caution, but immediate) and red (ideal target, but time for correction). At Friday's close of SPX 2767 there is still time to exit before further decline, as is usually the case. Alternatively, further advance may carry to higher ideal Fibonacci levels (3083 or 11% higher), but subsequent downside risk increases as those levels occur since an eventual correction is then expected.
Reasonable technical considerations indicate either scenario is nearly equally probable.
1. "To B" is supported by technical weakness in IWM, IXIC and ADDN (TradingView symbol use)
2. "not to B, to 5" is supported by important Fibonacci levels, current overly bearish sentiment readings (contra indicator), and oversold levels (MACD, RSI), and any successful re-test of recent 2710 low above 2690 (significant support area).
For either circumstance, initial correction is expected to be only the "a" wave of a larger decline of about 20%. An interim "b" wave will carry upward, but only to be followed by a "c" wave to even lower levels. Ultimately, potential exists for a wave "c" decline to 2335-2425. Too early to discuss the latter wave c decline, but positioning now allows for managing risk vs reward.
A pair of illustrations is provided for you to assess risk vs reward in the event of either scenario. In short:
1. Has wave 5 already ended at September's top, and are we currently in wave "b" of the correction following wave 5 ending in September? (To B)
2. Is wave 5 still underway and heading to the ideal Fibonacci levels at 3039-3115, to then be followed by a corrective wave? (not to B, to 5)
A notional target for the expected correction helps with assessing risk vs reward for both cases. That correction's target is in the area of 2558, or 13% from the September high (2940) and is illustrated with a,b,c patterns in yellow (caution, but immediate) and red (ideal target, but time for correction). At Friday's close of SPX 2767 there is still time to exit before further decline, as is usually the case. Alternatively, further advance may carry to higher ideal Fibonacci levels (3083 or 11% higher), but subsequent downside risk increases as those levels occur since an eventual correction is then expected.
Reasonable technical considerations indicate either scenario is nearly equally probable.
1. "To B" is supported by technical weakness in IWM, IXIC and ADDN (TradingView symbol use)
2. "not to B, to 5" is supported by important Fibonacci levels, current overly bearish sentiment readings (contra indicator), and oversold levels (MACD, RSI), and any successful re-test of recent 2710 low above 2690 (significant support area).
For either circumstance, initial correction is expected to be only the "a" wave of a larger decline of about 20%. An interim "b" wave will carry upward, but only to be followed by a "c" wave to even lower levels. Ultimately, potential exists for a wave "c" decline to 2335-2425. Too early to discuss the latter wave c decline, but positioning now allows for managing risk vs reward.