If the bears get a reversal down this week, it would be from the 3rd leg up in a wedge top. May 7 and June 14 were the 1st two tops.

If the reversal down was strong, traders would expect a 2nd leg down. They would then wonder if the yearlong rally was finally ending and converting into a trading range.

Even though there should be a 15 – 20% correction this year after such a climactic rally, the bulls will buy it. The bull trend has been so strong that traders will expect a test back up to the prior high.

Therefore, the downside risk over the next few months is probably 20%. Any selloff should convert the bull trend into a trading range and not a bear trend.

After several months in a trading range, there would be a 40% chance of a trend reversal (into a bear trend) on the daily chart.

Today’s Plan

We continue forward with a number of untested, nuanced levels stacking up below us. At the same time, we see short- term buyers stepping in where they would be expected which is a sign these traders continue to be in control.

Note the overnight low at 4268.50 coming right into the Friday’s Point of Control as a very recent example.

The S&P 500 achieved another new high in Globex. Such highs are always less secure.

On any weakness,  downside targets should be as easy as glancing at the Key Levels on the chart above, not the least of which are the back to back prominent VPOC’s at 4257.50 and 4230.87. The market is ripe (and getting riper) for a liquidation break that will repair some of these structures.

Early indications give little clue as to how prices will react on the open. The better trades may develop later rather than earlier today. There is a lot of blue sky above the highs, but note the top wedge and channel lines that must be conquered.

As the Globex low came down to the POC and rejected, watch this area as potential trigger for lower price action, should it be retested. Think of it as a weak low and a good bull/bear line for today.

Remember that a liquidation break will occur on faster tempo then we’ve had recently. If the market trades down very slow then sellers are probably not very active.

A.F. Thornton