Referring to the chart below, it is quite difficult to turn a blind eye to the possibility of a Head and Shoulders top. In recent hours, it has become clear to me that the drop from the April 20th high to the May 6th low is best characterized as a leading diagonal. There simply is no other way to interpret and still keep a straight face! This in turn explains the strength of the May 11th rally which established blue point A of a potential Bullish Deep Crab harmonic pattern, and subsequently yesterday's rally which established blue point C. Together, these two points defined the shape of the right shoulder, i.e., an 'M' pattern.
Moreover, the presence of the triangle in the orange 4th wave position implied an imminent trend reversal upon the exhaustion of the last move in the direction of the prevailing trend, orange wave 5. This information is very useful in that it bolsters the bearish case and the viability of the Head-and-Shoulders scenario.
Today's low tested the neckline before staging a tepid bounce into the close. This is normal, especially ahead of tomorrow's FOMC minutes. Once this bridge is crossed tomorrow afternoon, I suspect the carnage will likely get underway shortly thereafter. If so, Thursday/Friday should prove to be the bloodiest days since January/February.
The depicted harmonic pattern is an unconfirmed Deep Crab (XABCD) pattern whose PRZ ranges from 201 (1.618 XA) down to 196.63 (3.618 XA). Interestingly, the bottom of this range is coincident with the Head and Shoulders' MM. Should this bearish scenario play out, $SPY should, at a minimum, reach 201 (1.618 XA) by Friday's close.
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