Yesterday’s high of the day was $270.00 for the SPY … that took price officially into the SLOT resistance zone that I like to monitor for counter-trend rallies. Due to the strength of the move off of the prior highs into Friday’s low, I think that it is highly likely that we need at least one more leg to the price structure we are currently in when looking at the 195-min chart.
Whether that next move to a new lower low is the last leg of a corrective price structure that precedes a push up to new higher highs is yet to be seen. I suspect that due to the strength/melt-up of the market into the January highs, we are going to need a bigger more complex price structure move lower … that is why I believe traders will see a 3-wave structure to this correction before it is all said and done.
Here is what I think traders should be preparing for …
Bullish Scenario – SPY 195 Minute Chart #1
The typical turning point for a corrective bounce is that 61.8% resistance level – $273.72. The “C” wave of an ABC zigzag will typically terminate at around that 1.272x extension target, which would see the SPY get down to the $243.76 level.
Bearish Scenario – SPY 195 Minute Chart #2
So the near-term resistance zone for a bigger 3-wave corrective move in price is still at that 61.8% resistance level … Wave-2’s typically will terminate at the 1.618x extension target zone at around $232.12. The final Wave-3 target zone would be down at the $220.99 level.
Bullish/Bearish Scenario – SPY 195 Minute Chart #3
In either of the bullish/bearish scenarios I depict above, price will need to find an interim resistance level here soon … the intra-day high so far today for the SPY is at $271.79, which is pretty close to the last pivot high of $272.36 and that 61.8% resistance level of $273.72. Maybe we grind into that final resistance high on Friday which will then set up the next leg lower to begin next week.
Bottom Line – I believe the strength of the melt-up into the January highs, and the strength of the push lower last week will lead to at least a 2-wave structure lower into support. Personally, I think a 3-wave structure is what is going to happen but I will be giving the more bullish scenario respect as we push into that $1.272x / $243.76 zone as well.
Cheers … Leaf_West