On Nov. 7, SPX appeared to make a short-term top at 2597.02 which was re-tested successfully the next day at 2595.47 before pulling back sharply down to the 2566 support. It was unfortunate that we did not go a little higher on the second top, since it looked as if an ending diagonal triangle was forming, and the higher high would have confirmed the “e” wave of the pattern. However, I have it on good authority (intelligentinvesting.com) that it does not matter, because the pattern still qualifies as an ending diagonal. That being the case, it is probable that the correction is not over and that lower prices will be seen before it is. That would not be surprising because there is a minor cycle due in a few days that could keep SPX moving in a southward direction until its low.
What is unclear is: do we continue our 2566-low b-wave bounce, or do we resume the downtrend as early as Monday. On Friday, corrective action formed a small base on the P&F chart which could take us to a new recovery high before the start of the c-wave. Guess we’ll just have to wait until Monday to find out.
Generally speaking, the market is getting closer and closer to an intermediate top – about another month would be my guesstimate – which would give us the first significant correction in some time. In a strong bull market, it takes a while before we have the right conditions, and these are fast approaching. The 40-wk cycle, which is responsible for the nearly straight-up trend which started in mid-August, is beginning to lose some of its mojo and that will make the index vulnerable to the cluster of important cycles bottoming in December and January. So, the bears should soon be able to breathe normally again, at least for a little while.
Chart Analysis (These charts and subsequent ones courtesy of QCharts)
SPX daily chart:
As noted on the chart, the blue channel delineates the bull market leg which started at 1810, in February 2016. I mentioned a couple of months ago how remarkable it was that the 233-DMA was tracing out the bottom of the channel, and the 55-DMA its mid-channel line. As you can see, this has continued in the same vein. But not for very much longer. We are about to have a correction that will dramatically alter this near-perfect relationship. I don’t yet have a measurement for the expected intermediate correction because, with the action of the last couple of weeks, the distribution top has just begun to form. You can see on the chart that the price action is beginning to become congested, and this should increase as we continue to correct and make the final top in the next few weeks. Once that topping formation is complete, the P&F chart should give us a good count of what to expect.
