SPX Update: Bears Sharpening Their Claws

 On August 27, I warned:

[W]hile it may be hard not to get lulled into complacency here, we should remain mindful that the market is into its upside target zone, which is territory where bulls are going to need to prove themselves with a sustained breakout, both in NYA and SPX. If they can't, then we can see that the downside potential is not insignificant.

On September 10, I reiterated:

Do continue to keep in mind that the ATH does mark a potential MAJOR inflection zone, inasmuch as it could have completed an ending diagonal fifth (as we previously discussed -- thus, "major" as in: It was a possible "end of the 12 year bull market" wave).

In that update, and in every update since then, I've warned that more downside looked probable.  And yes, it's still too early to tell if the bull is completely dead, or if this will just turn out to be a scary "correction."  But we can't ignore that the market captured the standing upside target, then reversed -- and has continued breaking each key level I've outlined as "the next warning zone."  So, because I sometimes tend to warn softly, I want to make this as clear as possible:  

At this point, the default stance should probably be:  
"Bearish unless/until we see an impulsive rally."

Let's look at the near-term SPX chart first:

On the long-term chart, I've sketched-in the potential I discussed back on 8/27, to help readers visualize it a little better:

Worth noting that on Friday's close, I observed in our private forum that:

This whole "afternoon" (NYC time) looked like a complex flat to me. I think a gap down is entirely possible on Monday. If we don't get one, the open might be a gift to bears, as the low looks like another b-wave.

As of the time of this writing (about ~5 hours before the cash open), futures are down more than they've been in a while, so it looks like Friday afternoon was indeed a complex flat.

So, in conclusion:

1. The market hit the upside fifth wave target zone from June 7 (4480-4550).
2. It then hung around for a minute and reversed.
3. It's now dropping out of a pattern that has the appearance of an ending diagonal.
4. Ending diagonals are terminal patterns.
5. On July 31, I published a piece titled Why the Fed Will Be Powerless During the Coming Supercycle Crash, in which I opined that to bring things crashing down "all it will take is a catalyst."
6. The potential Evergrande contagion may be the catalyst.
7. It's certainly interesting that Evergrande has shown up right at a major inflection point.
8. Caveat:  Again, it is too early to say with complete certainty if this is THE end of the 12 year bull... but... all the conditions have been met so far.

Trade safe.