SPX: The corrective scenario

21 jul

Last week's selloff if making everyone nervous. Even though we are seeing a bearish engulfing candle, a weekly RSI negative divergence and severe weakness in tech sector, the selloff is not looking like a panic deal. This could be a calculated, well-planned correction just like Summer of last year that lasted from July through October. The severity might increase in the coming weeks and until we see another higher high, this could be the temporary end of the roaring bull market. I am not expecting a crash scenario as of yet and there is no sign of any major negative market condition as many are predicting. If this correction is a higher degree wave 4, then it could last for longer than 3 months. And, if it is, in fact an ending diagonal formation then price can drop below 4800 to wave 1 territory. As long as price is not below 3500 (which is a very long way down), we will still see a wave 5 incoming.

There is a much stronger alternate bullish scenario in the play. But, at the moment we will need to get through the corrective cycle. If, in the next 2 to 3 weeks, bulls just ignore the bearish symptoms and plow through the last ATH, then the ultra bull scenario might come into picture. At the moment, I am being cautious and going in 50% cash with stop loss set for everything....