S&P Reaffirms Relapse, Defines New S-T Bear Risk Levels

October 23, 2018 8:16AM CDT

Overnight's relapse below 12-Oct's 2732 low reaffirms the downtrend from 21-Sep's 2947 all-time high and leaves smaller-degree corrective highs in its wake at 2782 and 2824 the market is required to sustain losses below to maintain a more immediate bearish count.  In this regard these levels represent our new micro- and short-term risk parameters from which a neutral-to-cautiously-bearish policy can be objectively rebased and managed.  In lieu of a recovery above at least 2782, further and possibly accelerated losses should not surprise.

E-Mini S&P 500 240 Minute Chart

E-Mini S&P 500 Daily Chart

The daily log chart above shows the resumption of the past month's reversal as well as the developing POTENTIAL for a bullish divergence in momentum.  But this potential means nothing until and unless the market PROVES strength above 2825 and CONFIRMS the divergence to the point of non-bearish action like short-covers.  In lieu of such proof, the market's downside potential for what we believe is just the initial (A- or 1st-Wave) of a larger-degree correction lower is indeterminable and potentially steep.  A similar 12% plunge to late-Jan/early-Feb's would project to the 2590-area as a comparison, and herein lies the rationale for having even long-term players move to a neutral/sideline position following the failure below 2796; to circumvent the depths unknown of an initial counter-trend decline.

As also discussed however and similar to Feb-Mar's steep (B-wave) corrective rebuttal, traders remain advised to be watchful for a countering bullish divergence in momentum needed to stem this relapse and expose what could be an extensive corrective rebuttal that 1) may offer a compelling risk/reward trade from the bull side first and 2) provide a preferred risk/reward environment for taking longer-term defensive measures from what could be levels above 2850.

These issues considered, a neutral-to-cautiously-bearish policy is advised with strength above 2782 required to threaten this cal and expose the (B- or 2nd-Wave) correction higher we believe is coming sooner or later.  In lieu of such 2782+ strength, further and possibly accelerated, emotional losses should not surprise straight away.  Former 2735-to-2750-area support would be expected to hold as new near-term resistance.

E-Mini S&P 500 Weekly Chart

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