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Market Analysis - 6/14/2016

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It's no secret that a rising 50-day moving average (50-dma) is a dependable form of support. And when this moving average coincides with other forms of support, we have a support cluster. On the daily timeframe of $SPX, the 50-dma is at 2076.50, and the open gap is at 2076.06. This is depicted in chart 1 below. Furthermore, chart 2 depicts the ES M6 (S&P 500 June contract) and what appears to be a completed 5-wave structure. As such, it appears we have the necessary ingredients for a temporary bounce.

I say 'temporary' because we know from chart 1 that the massive 5-wave rally that began in February 11th appears to have ended on June 8th. We identified the bearish SHARK a couple of weeks ahead of its completion, calling for some sort of a reversal upon reaching 2120-2121. Furthermore, we identified a prospective TD Sequential Sell 9-13-9 exhaustion count several days ahead of its completion, which could only raise the odds of an impending reversal.

While a relief rally is to be expected during the two-day Fed meeting, the odds favor continued downside afterwards. When a 5-wave rally comes to a completion, the ensuing profit taking extends towards the bottom of the fourth wave. As such, the first line of support below the 50-dma is the TDST Support line at 2047.26. 

Needless to say, we're in the midst of a minor correction on the heels of the massive February-June rally. In the majority of cases, corrective patterns are messy affairs whose twists and turns are very difficult to predict. Hence, there's no way to tell RIGHT NOW whether this corrective phase will end near the endpoint of wave 4 (i.e., it a little above or below it), or whether the blue Bullish SHARK aiming for the 1909-1916 area will come to fruition. But the forthcoming price action will certainly shed a bright light on what's in the coming.

For now, do expect a two-day bounce, followed by another leg down at least the same size as the one that unfolded off last week's high.


Chart 1. $SPX Daily chart.


Chart 2. ES M6 (S&P 500 June contract) 10-minute chart.

 

Trade smart,

Peter 


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