If the SPX can make 904/906 a low and leave it behind, the bulls can hold on - but how long?

Pictures speak louder than words so here is an overview of how the markets are looking. As I've tweeted, the levels of 904/906 and 898 are to be watched because, as the .618 and .786 retracement levels back to 889, they can theoretically be wave 2 pullback levels for the bullish idea of more waves up. I'm not confident I share that point of view, because it looks to me like many sectors and indices are settling in for another leg down. Breaking under 898 would make it very likely I'm right on that, and of course losing 888 would confirm it absolutely. Do we get those confirmation levels today? I'm doubtful on that but will see.

As you can see, the dollar is moving up, and the VIX also. Did they finish putting in their lows? There's a good chance they have. Many traders will need to be thinking then, whether to hold or fold into the 3-day holiday weekend.

The negative skew has taken over so that the ChartsEdge weekly forecast was not able to produce a gain for any cash portfolios trying to buy on Monday and hold through today, as we are under Monday's levels. That seems bearish in and of itself. The only way I can see the bulls pulling it out is if we see a fantastic reaction today that pulls above the 904/906 level (I think that 898 would be too low, just my thought) and really looks like the beginning of a third wave up. I'm doubting that because of the ChartsEdge daily map as well as my views that I posted here last night.

The other problem as I mentioned yesterday is the VIX. It's just as likely that the 24.80 level put in the low there. Yes, theoretically equities can edge higher with divergence from the VIX, but in this environment I don't see that in the immediate future. It would have to be something that occurs after several days if not longer.

I've mentioned that trading styles differ and this week has been a classic example, as only the daytraders and margin traders have been able to navigate the choppy waves. That's why I do try to focus my comments in ways that cash account swing traders can still benefit. The market this week hasn't been as cooperative, unless you were conservative enough to just stick with the idea that the head and shoulders (and the 930.49 level) were the important picture to watch for the slower moving accounts and don't get bullish unless above 946 or of course 956. That's still a good way to go, because we cannot guarantee that 904/906 gets respected as a low with the markets pulling a bullish, big wave 3 upward out of a hat.

So as always, be careful out there, and happy market navigating!

(click on an image to see it larger)