Bottom line:  SPX500 might have formed a meaningful bottom around 2271 levels or could be close to printing 2250/60 lows before turning higher again.

Technical Analysis:

SPX500 might have terminated Wave 3 drop close to 2270 levels yesterday, or could print one more low at 2250 before turning higher again. We had discussed indices last Friday stating a Wave 3 in progress; which looks to be complete now. The wave counts are pretty clear as labelled here; Wave 1 terminating around 2854, followed by a sharp Wave 2 terminating around 3138 and Wave 3 clearly traveling a distance of 1.618 times Wave 1; terminating at 2271 yesterday. Please note that fibonacci 1.618 comes to 2257 so a shallow low might be expected before pulling back. Also note that a major support has been taken out at 2315 (December 2018 lows), keeping bears in control. If the above wave counts are correct, and if an impulse wave is underway since 3400 levels, we still have one more low below 2250/70 to complete 5 waves drop. According to the counts presented here, a high probability counter trend rally should be underway soon, pushing prices higher towards 2600-2800 price zone as highlighted here. This could be Wave 4, and it might take shape of a triangle or an expanded flat, since Wave 2 was pretty sharp. Also, since a major support has been taken out at 2315, a pullback should be normal. Keeping the above facts into consideration, most traders might be preparing for a counter trend rally towards the 2600/2800 levels soon. It might be considered safe to exit on the short positions taken earlier and either remain flat or might initiate aggressive longs from here. A more conservative trading strategy might be to allow an impulse rally breaking past 2550 levels to confirm an interim bottom in place.

Prepared by

Harsh Japee, Technical Analyst.

SPX500 Chart

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