SPX Is Rallying In A Countertrend Move

What is technically the first phase of an anticipated intermediate correction came to a stop at 2801 from a high of 2954, or a decline of 153 points. Structurally, this is either a wave-a, or a wave-1. Future action will determine which it is, but either one calls for a rally (wave-b or wave-2) followed by a resumption of the decline. The low was made on 5/13 and since then, SPX has retraced nearly .618 of the initial downtrend, which means that this may be all we get -- although there is enough ambiguity after Friday’s close to suggest that the retracement is not complete.

How far the correction will take us is unclear at this time, but it may be easier to gauge after we have started the second phase and made a new low. Some EWT analysts believe that 2346 was the low of wave-A of a larger correction, and 2955 the high of wave-B, with wave-C just starting, and possibly taking us to a new low before it’s all said and done. From a timing (cycles) standpoint, the correction could continue until August/September and this is enough time to fulfill all prophecies.

Chart Analysis (The charts that are shown below are courtesy of QCharts)

SPX daily chart

By declining to 2801, SPX has come out of both channels, the green one and the blue one.  After an initial decline finds support, it is normal for a relief rally to take prices back to the bottom line of the channel which has just been broken (in what is called a “kiss-back”). The five-day rebound almost reached the blue channel line on Thursday before turning back down, but since there is no concrete sign that we are ready to resume the (presumed) primary trend right away, we could push a little higher before turning down again decisively.  Of course, if we drive back inside the blue channel, we would have to allow for the possibility of continuing the uptrend instead of starting an important correction; but that is not on the radar, right now.

Proof that we are in an intermediate correction would require dropping back below the 200-dma and the 2722 former short-term low. This would also give us a congestion area above the lower red horizontal line which, on the Point & Figure chart, would give us an idea of how low the correction will eventually take us. It is possible that we extend the downtrend to the dashed green line and continue the primary trend in a broader, green channel. It’s early in the correction and there are many possible scenarios for what lies ahead. As we move forward, these will be eliminated one by one, until only a plausible one is left.

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Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of ...

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