Though Friday's action was impulsive to the downside, it was non-committal as a follow through day, not closing under the gap.
However, Monday opens with some potential commitment to the downside. Currently the move down from Thursday's high has only posted 3 waves:
(click on chart for full view)
Strong patterns are present for both the Bull and Bear case. A break-out from either of these positions will likely cause many stops to trip producing strong moves in either direction.
The Bear Case - Currently underway, price action in the short term would need to stay below Key Resistance (KR) at 1343.31 and then see at least one more leg down in the next day or two. A five wave impulse down for wave (i) may end at a prominent Support/Resistance zone between 1292 and 1300, with the 61.8% fibo retrace in between at 1296. Bears would then want to see a lazy 3 wave bounce into wave (ii), preferable staying under the KR (1343.31). Any moves above the Critical Resistance (CR) at 1356.48 would kill the bearish potential in favor of the Bull case. After a wave (ii) bounce, Wave (iii) down should easily take out the neckline of the Head and shoulder pattern, triggering a possible slide to the HnS target of 1146ish.
The Bull Case - Any further weakness in the market needs to maintain a choppy consolidation pattern of overlapping 3 wave structures, preferably keeping above the S/R zone. Such a pattern could be a handle of a bullish CnH pattern. Bulls would want to see the rim-line challenged and then eventually broken after the handle is complete. Tripping the rim-line, produces a calculated target of about 1460ish.
In these types of circumstances - neutral cross roads, with strong break-out potentials, a good trading strategy is using a straddle. A typical straddle position uses equal weights of opposing instruments, for example: $10,000 of SSO (200% the SPX) and $10,000 of SDS (200% inverse the SPX). Then when the Bull or Bear case loses as defined, then end the losing position and keep the winner.
I also did a time fibo measurement from the current top of 1370.58:
The fibo time sequences #1,2,3 and 5 have all produced a turn. I would look for #8 to also present at turn around July 18th (Monday). A Full Moon is also present the Friday before on July 15th (end of this week). This could mark the end of this neutral area and the start of the break-out. A Fibo turn date typically doesn't show direction, however if a trend heads into that date, the trend is likely to reverse near that time.
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