SPX Update, and Some Fundamentals at a Glance

The last two updates suggested SPX would probably test the 2490 zone, and in the most recent update I stated:

I will throw my hat in the ring and say that I do suspect Friday's low will be broken in reasonably short order, because it looks very much like a B-wave. 

Friday's low was broken, and SPX headed to the 2490 zone (2488 to be exact).  From there, it bounced relatively strongly.  Right now, that bounce up has only been three waves, so it's not out of the realm of possibility that SPX will turn back down from here.  If the bull wave count is unfolding, then there aren't enough waves up in place yet, so we probably have to lean toward the idea that the market will hold that low and head higher -- particularly if SPX sustains trade north of 2504.  But that's not a given yet, due to the potential of black "alt B" and "alt C" on the chart below.

So, while I've noted the bull count is currently an incomplete structure, if the bear count is underway, then the current rally is instead already a complete structure.  So although I'm leaning toward the bulls, bears still have an out:  If the 2488 low fails, then we'll have to give serious consideration to the bear count.

I'd also like to share a fundamental chart that I found interesting.  The chart below show the SPX in comparison to Durable Goods Orders.  As we can see on the chart, the two have correlated almost perfectly over the past quarter-century -- up until recently, that is. 

Ever since the 2015 correction ended, SPX has continued to rally strongly, while durable goods orders have remained range-bound.  There are no other examples of this happening anywhere else on the chart, so how long this situation can continue is anyone's guess.  (It's already gone on for about a year and a half.)  But it does suggest that valuations are probably a bit too frothy, and this might fit with our expectations that a larger fourth wave correction is relatively close.

Interestingly, it was just announced that durable goods orders jumped 1.7% in August, so I suppose it's possible for durable goods to start catching up with SPX.  As I mentioned, there are no other examples similar to the recent past, so we don't have a precedent to draw from.  But I found the chart interesting either way.

In conclusion, SPX tested the expected 2490 zone, and has (so far) bounced from that zone.  As long as bulls continue to hold that low, then we probably have to give them the edge, if for no other reason than the simple fact that it's a bull market, so they don't seem to lose many of these battles.  But in the event SPX sustains a breakdown at 2488, then we'll have to shift the edge to bears for the near-term.  Trade safe.