Risk On Or Off?

We do not often see declines in equity markets like the one we have been witnessing for the last few months in the US and for almost the last year in Europe. Bears are back and look for a repeat of 2007-2009 crisis or even worse…a repeat of 1929 crash…..So is this wave count out of reality?

SPX regaining 2500 last week was a first step (baby step) towards a bigger bounce if not the start of a new up trend.

If the recent lows only marked the end of a corrective wave, we should see a strong bounce as SPX has recaptured 2520. The next few sessions will be crucial. Why? Because the bullish flag pattern will be confirmed or canceled. 2620 or even 2720 are viable targets for a B wave correction or the third wave of a new impulse. Whichever wave count we choose, short-term I’m biased to the upside as long as we hold above 2490-2520. Oil which was leading SPX also shows reversal signs.

Oil has already broken out of its bearish channel and despite the new low, I consider this setup to be very bullish as it was a back test on the upper channel boundary.

Oil has declined towards its support (consolidation) area that was once resistance

A move back towards $60 is very possible for me at least as a back test of the broken trend line or a test of the Ichimoku cloud.

These are signs implying that Risk on is coming back.

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