The futures continued to plug along during the overnight session, reminiscent of the post-August 5th recovery. It's true that Monday's low was sufficient to establish the nominal low for the 4th wave associated with the bull run that began on October 3rd. But to expect a V-shaped reversal as if nothing's happened would be a bit naive. Something else seems to be unfolding, and it warrants the utmost vigilance. Last year's mid-course correction was a protracted affair that began on May 1st and went on until October 3rd. In retrospect, it was a triangle, or a wait-and-see-if-a-trade-deal-gets-done pattern, as I like to call it. If a scaled-down version of last year's multi-month holding pattern is currently unfolding, it would be a similar wait-and-see one, given the Coronavirus headwind and its potential impact on GDP. The market will eventually demand clarity of this matter.
It's easy to make a call one way or the other based on some so-called-crucial price level that gets taken out. This bounce here came on the back of two back-to-back 80+% down-volume days, setting the stage for some end-of-month window dressing, thus driving the S&P 500 back up towards the top of the range. For the $ES, two Fibonacci retracement levels stick out: The first one is the 61.8% near 3297.50, from where the most recent down leg began on Friday afternoon and into Monday morning. Should it be reached soon, the open gap at 3291 would get filled along the way. The second retracement is the 78.6% at 3315; This one is in perfect line with the January VAH (value area high), and just 4 points above the 2020 VAH. Any such move targeting this lofty level would be nothing short of hubris, in my opinion. Let them close the month on a positive note because come February 1st, things could change on a dime. But as I indicated earlier, this 4th wave will very likely be a range-bound affair that will ultimately usher in the FINAL move to 3440-3500. Hence, the range extremes will likely be bought and sold for a while. A key magnet-like level for the $SPY is the developing 2020 VPOC at 330.
Consistent with this argument is the fact that the Dow Jones Transports and the Nasdaq Banking Index are both barely off their Monday lows. And the Semis should be in no mood to rally to new highs after an exhilarating run that almost reached my extreme 2020 target of 2057 in a matter of a few short months.
$ES daily chart depicting the fourth wave and its associated range relative to the 2020 developing value area (VA). The fourth wave is depicted as a potential triangle here for illustration purposes: http://www.61point8.com/Portals/0/article%20images/2020/20200129/20200129ES1.png
$SPY daily and weekly charts depicting the daily-timeframe range and the triple-cross pattern on the weekly stochastic: http://www.61point8.com/Portals/0/article%20images/2020/20200129/20200129SPY1.png
$SPX Breadth - Ratio chart of the S&P 500 equal-weighted vs. the S&P 500 cap-weighted (benchmark). The cap-weighted index has been steadily outperforming the equal-weighted index, mostly due to the mega-cap stocks and the excess liquidity. In short, the fundamental picture isn't as 'fun and games' as the media and its pundits are leading us to believe: http://www.61point8.com/Portals/0/article%20images/2020/20200129/20200129SPXBR1.png