Sideways Before The Drop

The market seems to be levitating over the last few days, without providing a resolution to the micro structure we are attempting to track. 

While I still think we can begin a strong decline once we break below last week’s low, I am not convinced we are ready to immediately drop.  I still think the market may attempt another push higher in either wave [ii] in green or even wave 2 in yellow. 

The main problem that I have right now is that experience has taught me not to be aggressive to the long side when the market is potentially set up for a 3^rd wave to the downside.  Sometimes the market does not provide you much more of an entry for short positions, and simply lets go in an unusual set up.  Right now, I would view the market in that type of posture.  Moreover, the micro structure can even suggest that the next decline phase may have begun. 

So, while it would “look best” for a move higher to complete either wave [ii] or 2, it is not something that I would suggest as a strong probability. Furthermore, there are still many charts that really seem to need a “bounce.”  That would align well with a bigger corrective retrace higher in the SPX.  So, while I would certainly prefer a move higher to be able to add additional short positions, it is not something I am hugely confident in at this time.

This leaves me with the same guidance I highlighted the last few days:  As long as the market remains over last week’s low, then we retain a reasonably probable potential to rally higher for a bigger retracement before we begin the impending drop.  However, if we break below last week’s low sooner rather than later, then it suggests the market is falling into the trap door, with a follow through below 2770 confirming that.