SPX Hiatus – Waiting for a Short Term Top

SPX Hiatus – Waiting for a Short Term Top

Daily SPY chart: an illustration of how breakouts fail during ranging marketsA little more than a dozen points, that is how much the cash S&P500 index fluctuated so far this week. It is stuck right in the zone that we marked as “potential resistance” last week. The lengthy lull is a pause, when the entire market waits for a breakout to show direction at the top of the 10+ week long trading range. Breakouts from elongated trading ranges fail most of the time, and that is probably going to be the case this time around too.

But, first we have to focus on what is going to happen short term with the tiny price range of this week’s trading. Because the daily bars totally overlap each other; every intraday breakout attempt fails, and the whole structure hasn’t moved much against the previous bull leg. This definitely fits the characteristics of a triangle, or sideways consolidation-like move. Triangles are time corrections, and they are the most typical form that creates a terminal setup – when a breakout happens in the direction of the previous trend, here up, but soon reverses and gives way to a larger size bear leg.

SPY ETF bar chart with trend lines and Elliott labels
First up then down, but the key support has to give way to project something like the February low.

Whenever we have a number of valid Elliott wave counts, that all seem to be about an equal probability, triangles can come handy. They appear only in wave four, B and X position. This rule narrows down the number of possible interpretations, and, therefore, triangles provide us with a significant point of orientation. Here the pattern must be representing a wave four bullish terminal setup.

The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.

About Laszlo Nagyferenczi

Laszlo Nagyferenczi is a day trader, analyst and instructor as well as the creator of the proprietary Context-Momentum-Signal concept. He has authored over 200 blog articles about his unique approach to trading and the Elliott Wave Theory. His clients appreciate his ability to go from the theoretical to the practical i.e. all the way to the actual trade set ups. Originally hailing from Hungary, Laszlo is fluent in English and Hungarian with a long list of education credentials including BA in Economics, Certified Elliott Wave Analyst (CEWA), Certified Adult Educator for T-Groups, Professional Co-Active Coach (PCC) at CTI. The real education, though, has been the trial by fire in the markets, with real capital at risk.

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