Thanksgiving Update Part 2: The SPX

I believe we have reached a key inflection point for the major equity indexes. There has been a tremendous recovery since the Spring sell-off. The markets have reached over bought levels and a much needed pullback should be seen in the relatively near future. The depth of that retracement could be anywhere from significant to devastating. The bullish scenario is shown below. This wave count labels the Spring sell-off as the completion of Cycle Wave 2 and the SPX is now in what should be a impulsive Cycle Wave 3 fueled by hyperinflation of assets. In this scenario primary wave [1] of Cycle Wave 3 is about to top and should be followed by a 38.2%-61.8% retracement of primary wave [1] in primary wave [2] of Cycle 3. As I noted back in April for both the international indexes https://alphahorn.com/2020/04/05/weekend-update-part-2-12/

and for domestic indexes in way back in March https://alphahorn.com/2020/03/21/weekend-update-part-1-worldview-of-future-implications-on-the-gold-and-equities-charts-you-wont-see-elsewhere/

the domestic and leading international indexes had retraced enough to satisfy the requirements for Cycle Wave 2 pullbacks pretty much across the board in the Spring. So, this more bullish scenario that those lows will not be taken out in any coming pullback is a very likely outcome.

On the other hand, many are looking for a major deflationary event that will preceed the hyperinflationary impact of central bank action. This could happen in the blink of an eye as dramatic pullbacks often do. This extremely bearish wave count is that the Spring pullback although deep was merely primary wave [4] of Cycle Wave 1 and the recent highs are primary wave [5] and Cycle Wave 1. Compared to the bullish scenario above, the coming correction in Cycle Wave 2 in this count will be far greater and more devasting.

In conclusion, the way I read the charts a significant top is forthcoming for equities. The timing of that top is anywhere from immediate to near term (a month or two). What follows will at first look to be pretty rapid and potentially devasting to many longs particularly those on margin. The passive investment vehicles could very well be a catalyst or more correctly fuel for the fire and the rapid nature of the sell-off. As always, this is not investment advice. Everyone should consult with a financial planner before investing even a dime in these crazy markets.

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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