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.
Important Disclaimer
CastAway Trader LLC, the publisher of this web-site and videos is not registered as an investment adviser nor a broker/dealer with either the U. S. Securities & Exchange Commission or any state securities regulatory authority. Users of the website www.castawaytrader.com and viewers of the videos are advised that all information presented on the website is solely for informational purposes, is not intended to be used as a personalized investment recommendation, and is not attuned to any specific portfolio or to any user’s particular investment needs or objectives.
Trading stocks, options, or futures carries a high level of risk, and may not be suitable for all investors. Before deciding to trade, you should carefully consider your objectives, financial situation, needs and level of experience. CastAway Trader LLC provides general overview of trading methods that does not take into account your objectives, financial situation or needs. The content of this website must not be construed as personal advice. All trading setups and/or trades presented in the web site and/or trading chat room by CastAway Trader an/or by other members of the chat should be considered hypothetical for educational purposes only and should not be expected to be replicated in a live trading account.
An investor could potentially lose all or more than the initial investment. You should not speculate with capital that you cannot afford to lose. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style.
You should be aware of all the risks associated with trading. You should seek advice from an independent financial advisor.
Any information posted on this web site is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All users of the website must determine for themselves what specific investments to make or not make and are urged to consult with their own independent financial advisors with respect to any investment decision. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. All opinions, analyses and information posted on the website are based on sources believed to be reliable and written in good faith, but should be independently verified, and no representation or warranty of any kind, express or implied, is made, including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, CastAwayTrader LLC and its officers and employees undertake no responsibility to notify such opinions, analyses or information or to keep such opinions, analyses or information current. Also be aware that the owners, officers and employees of the web site www.castawaytrader.com may have long or short positions in securities that may be discussed on the website, Premium Trading Chat room and/or in the videos posted by CastAway Trader LLC.
Past results are not indicative of future profits.