Option Investor
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Today's bounce is too large to consider it as part of the leg down from last Thursday (from an EW perspective). That's subjective but it fits better as a correction of the decline as SPX has nearly retraced 50% of the decline (806.42). It's either the first leg up of a larger bounce, shown in pink on the updated 60-min chart, or it's all of the bounce which will be followed by another leg down. In either case I'm looking for another leg down but I would feel less confident about that if SPX were to rally above gap close at 816. NDX just closed its gap at 1250.82.

SPX 60-min chart:
[Image 1]

The pink wave count now calls for a pullback and then another leg up on Wednesday/Thursday to then be followed by a decline similar to the one from last Thursday to yesterday's low. The dark red wave count calls for a resumption of the selling following this bounce, with a drop below the 50% retracement at 750. In between is the dashed line that calls for a decline following the current bounce but only to equal the drop from last Thursday to yesterday's low, so a downside target near 753 (two equal legs down from last Thursday if it starts back down from the 805-806 area) which is also close to the 50% retracement.

Because we're in a corrective price pattern this is why I'm saying we need to play this one leg at a time and see where price takes us. Corrections are very difficult to predict in real time but at least after the pattern is near complete I should have a better feel for what the market is up to. In the meantime trade very carefully and keep in mind that flat is a position.

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