Technical Outlook:

SPX500 breaks its counter trend line since March 23 lows yesterday, dropping over 200 points. It has managed to close around the 3000 handle as seen on the chart and has entered the sell zone of the counter trend line. High probability remains for a major top in place at 3230.

Structurally, SPX500 had collapsed from 3400 through 2200 levels earlier. The indice had unfolded into 5 waves, making an impulse, Wave (1) on the chart here. Ideally, a 5 wave movements calls for a 3 wave move in the opposite direction.

SPX500 had rallied since March 23, 2020 in 3 waves, between 2200 and 3200, A-B-C on the chart. This corrective wave or counter trend rally terminated Wave (2) around 3230. Thus, a classic Elliott Wave pattern was formed: 5 Waves Down, followed by 3 Waves Up.

As a general guideline, a 5 wave move in any direction is incomplete, and requires another 5 waves to unfold towards the major direction. In this case the 5 wave drop needs to be followed up by another 5 wave drop below 2200, Wave (3) projection.

Yesterday’s drop has more or less confirmed that SPX500 has reversed lower and should remain in control of bears, going forward. A minimum target could be seen below 2200, while the fibonacci extensions are pointing towards 1750 and further.

Intraday/short term rallies remain possible but SPX500 should stay below 3230 levels, going forward. A break below 2766 would confirm with certainty that the indice has indeed turned lower. At the moment, a high probability trend reversal remains on track.


Trading Strategy:

Short against 3400, targeting below 1750.


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