In Monday's update, I noted the following on the S&P 500 chart: "Downside risk may be exceeding upside potential at the present moment." During that session, S&P 500 made a new high by less than one point, and then proceeded to generate a 14-point reversal.
Frankly, I have spent a ludicrous amount of time staring at charts since yesterday's close, so I'm going to keep the body of the article fairly light and let the charts do most of the talking.
First off, let's take a look at the Philadelphia Bank Index BKX, which has all the ingredients in place for a complete rally:
For perspective, here's another look at the long-term S&P 500 chart. For the time being, I remain in favor of the thesis that we are completing a higher degree fifth wave, to be followed by a significant correction. I'm not closed to the more bullish options, however, I feel we can adjust to a more bullish footing in real-time as and if needed.
The 2-minute S&P 500 chart shows an impulsive decline from the recent 2093 high. The chart discusses the options further:
Next is the Dow Jones Industrial Average, with little in the way of annotations. I simply find the chart pattern intriguing:
Finally, General Electric (NYSE:GE) represents one of the higher-probability short plays I've seen in a while. This seems to match the thesis that a larger market correction is pending. Red-wave 2 may or may not be entirely complete and marginal new highs for the current wave would not alter the outlook here.
In conclusion, this is a game of inches right now. There are enough waves in place for a complete rally, but we still haven't seen a clear fourth wave in S&P 500, which means the fourth wave may or may not be underway now (in the event of a fourth wave, new highs will follow). It's thus advisable to stay nimble on both sides of the trade at this exact moment. As noted last update, the easy money is over for the time being -- but it will almost certainly return soon enough.
Have a wonderful and prosperous New Year -- and, in the meantime (as always) trade safe.