S&P 500 Update and Trade Set-Up for SPXU

Click on Chart to Enlarge

The chart above was made last night and does not include today's gains in the indexes. However, today's gains fit right in with the scenario on the chart comparing the current environment to that of late June. Most of the notes are on the chart and builds on my last update with a slight modification. The lack of explosiveness on the downside move does not suggest to me that the pattern forming is complete, though it may have made its highest price level.

What I think the most likely thing happening here is a contracting pattern, but it will probably not be interpreted that way by most people. The main logic is that in the labeling I have above, the "c" wave is shorter than the "a" wave. In that case, the only standard wave pattern to form would be a triangle with an "e" wave that is shorter than "c". While there is one other possibility that I think is reasonable, the most sensible to me would be that we are in a "d" wave to be followed by a bounce for wave "e". The odd thing is that the "b" wave is so small, that the "d" wave should be expected to alternate by being larger and taking longer. Because of that, I would expect this current advance to be sold and move to fresh lows in the next couple weeks. While trying to look any further than that is probably dangerous, right now things make enough sense to me to trade against this short-term rally with a stop corresponding to the highs at 1080 on the S&P.

New Trade Orders:

Place a day only limit order to buy SPXU at 44.50. Use 42.50 as a GTC stop immediately after entry and for determining position size. Please use the money management post for trades with stops if there is any question on position size.