Planning targets for a SPX break
Next low could produce a crash, here are things to look for.
SPX has now followed the path of our warning signals. Not perfectly, enough to make it tricky making short-term trading decisions at some points, but with small margin of error of only a few percent out. If bulls are going to rip, I think 3800 is their level. Under there I think conditions become much more obviously bearish.
The DJI model would now be flagging up big warning signs of impending crash. The DJI flags up the break as having been made and a much more obvious drop being due. The style of price move this forecast would rarely been seen in indices without there being some sort of news event going along with it.
Another model that’s performed well and is now flagging up crash signal is a forecast of how a bear market in 2022 would look if it was like the 2007/2008 move. This model was written up late 2021. The model assumed the high was in but we actually made one small swing higher.
This model forecast 7 swings. Currently 5/6 have hit very close to as expected with 1/5 being notably similar but coming in just shy of an expected retracement level. All variance within a few %. You can use the link above to read through the first swing forecasts, here’s the one we’d be in now if the model continued to work.
Real move vrs model forecast here are very similar. The blue corrective swing looks a lot like this SPX bounce and this bounce terminated in the expected retest and rejection zone from the model.
Both of these model now give strong bull exit / short signals.
Targeting Zones
I do not have time to extensively add in reference pictures from previous crashes to backup the following crash target tendencies - but these do seem oddly recurring in historic crashes. I’d welcome you to look into that yourself. Various different targeting methods have a lot of agreement in zones.
The 423 extension:
423 extensions of the final topping swing are where most reversals/bull traps form after strong sell-offs. Typically if price breaks the 261 fib it is heading sooner or later to the 423 fib. Often there’s some big bounces near the low and a capitulation spike out of the 423 before the market starts to rally/retrace again.
Level implied here is 3500. Expected spike-out/variance puts ideal spot to speculate on lows somewhere into a spike down to 3300 - 3400. Conservative short targets front-run the 423 fib and would be around 4550 - 4600.
The 161 Breakout:
161 breaks of topping swings have consistently been the best leading indicator that a market is switching to a stronger downtrend. In almost all cases of big crashes 161 breaks have been pivotal. Sometimes price can range around 161s and make spike high/low patterns for a while (Can be months) but once the 161 is definitively given up the market capitulates. Usually with news.
161 break targets are 220 and 261 fibs. Giving targets of 3750 and 3450 from front-running these fibs. The implied low of the swing is 261 with some spike tolerance, agreeing with the 3400 - 3300 price range given with the 423 fib.
The Retest Rally
A macro trend tends to fail in three main swings. The first one takes us down to the last big support base breakout. There’s a bounce from there, this tends to be where people start to get bullish on the market again and this sets up a rug-pull style crash. Using this roadmap would imply bounce on SPX 2019 high.
2019 high was of course 3300, matching with the fib clusters.
Forecast
Implied forecast here is SPX strong down from 3900 area, picking up momentum when getting through 3800 without any notable bounces until 3700.
Bit more choppy in the 3700 - 3300 zone. Can be multiple strong rallies in this zone but they present good selling ops.
End of good bearish ops and start of bull ops 3300.
This swing hitting usually implies another low later after retracement.
A capitulation crash would often come off retracement from 3300.
Capitulation crash typically takes market to 50% of ATH before bounce.
Ideals from these models are not playing out if SPX trades over 4150. We’re 3940 as I write this. 4167 looks a good stop out level for shorts. Even if a big trade is to come it might come from as high as 4400 if we continue to have large retracements into lower lows.
If we’re heading into the downtrend the market should now begin to trap buyers. Not breaking previous big highs and making lower lows. If this is happening we can short all breakdowns of lows with stops above last highs and we can short into all big 76 fib retracements.