The most important thing in any type of a technical analysis is to understand what is the macro picture.
I keep posting that monthly chart of SPX.
You can see that 23.6% retracement of the completed wave ( 3 ) up is located at 2,845.
Now look at 21 EMA, the blue line.
21 EMA normally catches drops under 8 EMA in a bull market.
Currently 21 EMA calculated based on Low is sitting at 2,802.
The classic 21 EMA calculated on close price is at 2,902.
Now I want to show you one instrument from Hurst’s toolbox called FLD or Future Line of Demarcation.
You shift Close price forward by 21 period
As long as price holds above that line it is in a bull trend.
You can see that indicator manages to hold teh up trend since 2010
What I am trying to say is that despite all that bearishness or even panic mood the macro trend is still up.
It is clear that most likely wave ( 3 ) up has topped.
But that means a corrective wave ( 4 ) down has started.
And that means there will be wave ( 5 ) up that will most likely make a new all time high. That is not the end of civilization. We deal with a temporary pullback in the market. That wave ( 4 ) may take months.
But price will not be dropping like a rock all the time.
2,850 is a good target for the first drop. It can even be slightly overshot. But it is reasonable to expect a strong bounce in a corrective wave ( B ) up after the first leg down bottoms. And that “dead cat” bounce may quickly retrace 50% – 58.6% – 61.8% of the whole drop in a matter of one or two weeks.
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