Pushing The Envelope

Last week, the market exceeded by a few points the boundaries proposed by the most valid base P&F count.  That does not mean that our long-term market correction is over.  Far from it!  In P&F analysis, the most conservative count is the first to be considered.  More often than not, this is the area where the prevailing rally or decline reverses.  If, however, as it is the case today, we are tracking an exceptionally strong counter-trend rally, we can assign a more liberal count to the trend and, in that case, we come up with 2058, 2070, and perhaps even 2080 before we reach a reversal point.  

I am certain that some of the “bears” are getting a little nervous, especially those who went short too soon, but in my opinion, it is too early to regard this move as a new bullish uptrend.  The SPX would have to go past 2116 before I would have a change of mind.  In any case, P&F charting is only one tool, and no technical tool is 100% reliable.  But collectively, technical tools are pretty efficient at determining the beginning and end of any trend.  Let’s see what they tell us in the days ahead.

On the short-term, we cannot ignore the negative divergence in the hourly indicators, as we will see when we analyze the 60m chart.  The odds that we are ready for a minor correction are very good.  But more work needs to be done by their indicators before we can expect the weekly and daily trends to roll over.  In all probability, this means that an attempt will be made to reach the levels mentioned above.

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

Nothing has changed in the structure!  The index has progressed higher, but it has retained the wedge pattern.  Since  price has not been able lately to reach the top trend line of the wedge on each succeeding thrust, we have to consider this a form of deceleration.  Another small detail: note that the last up-thrust (of the second set of threes from the last pull-back) has a smaller range, which is also a sign of deceleration, and we could count the entire progress from A to B as three successive a-b-c formations.  Does that mean that the wedge is now complete?  It all depends on what kind of correction we get from here.  A minor top at Friday’s high is practically assured, but I would not swear that the entire formation has ended until we see some real selling taking place.