The S&P500 has been contained in a triangle since our last report. The momentum has been dead neutral as the RSI has been contained between 40 and 60. This followed a dip from above 70 to 30, which means the preceding bullish momentum was also neutralized. The only bullish bias is that it is trading above a rising 200-period simple moving average in the 4H chart. It should be noted however that the market is trading under the 200-day SMA.
Bullish Idea: Elliott Wave structure for a triangle correction is conventionally 5-waves, abcde. The S&P500 indeed has completed its 5th wave. It is possible that now, as the 200SMA in the 4H chart catches up, the market is ready to continue upwards. The last 2 times the market tested the projected triangle support, we each had a strong bullish 4H candle that was then followed by a rally toward the triangle resistance. If the current 4H candle forms a doji, and a strong bullish candle pushes back above 1240, we can be looking at a similar scenario to the upside in the short-term. Upside is contained below the high near 1288 for now.
Bearish Idea: A break of the triangle to the downside is first limited to 1210-1211 area. Below this, we can see a sharper correction toward 1177, which is near 50% retracement of the 1087.73-1286.93. 1151.50 (61.8% retracement) would be a slightly more aggressive outlook in the short-term. A break below 1150, opens up the 2011 low near 1076.
Forex market implications: A bounce from triangle support suggests a reversal in USD and JPY crosses. The USD and JPY has been gaining from risk aversion, so risk-on trading associated with a rally in the Spoo should be seen along fading of USD and JPY strength. On the other hand EUR, AUD, GBP, NZD, and CAD should gain. CHF has been tracking EUR, so it might rally as well against the USD and JPY.