It is do or die time for the bulls. Can they muster what they need for a very strong rally in the upcoming week, which will take us to 2150, or will they falter on Monday and signal the initiation of the correction to the 1800s?
Previously, I noted that our primary expectation was for a decline last week, the shape of which would provide us indications as to whether the highs for 2015 have already been seen. The market did not disappoint.
It is very hard to count the initial drop off last week's high as a clearly impulsive count. For that reason, I have begun to look up to new all-time highs, at least as long as we remain over the 2064SPX region. As long as Friday's low is not breached, I will be looking for an impulsive rally to take us through the 2085SPX region to confirm that wave ii has bottomed, and that we are heading to the 2150SPX region for wave iii in the upcoming week.
However, I will warn you that should this pattern break down with a drop below 2064SPX, it will likely occur on Monday, and it will strongly suggest that the market has topped for 2015. It will have me looking for a drop toward the 2045SPX region, and as long as all "bounces" from that region, or lower, remain below 2075SPX, it will keep pressure to the downside and have us targeting the 2000 region for wave 5 of iii in the (c) wave of a-wave of the larger degree wave 4. This 4th wave has an ideal target in the low 1800 region, and will not likely complete until the fall, even if we have already begun.
For the upcoming week, I will be looking for either confirmation or invalidation that Friday's low is the bottom of wave ii, which means that if we see a 5 wave structure develop off that low, we are likely heading to the 2150 region, which can happen quite quickly within wave iii. If we break down before such 5 wave rally can be seen, pressure will remain to the downside as long as we are unable to break back over the 2075 region.
So, at this point in time, the analysis is rather straightforward, especially after many months of chopping around in this region. The market is finally at the point it should make a decision, and as long as it remains over the 2064SPX region, it is pointing to new all-time highs in the upcoming week. Should we break below that level, and complete 5 waves down to below the 2000 region, we will see a corrective rally in September, which will set up the decline toward the 1800 region in our larger degree wave 4 correction.
But even if we do see a correction to the 1800s, please recognize the probabilities suggest that this bull market has several more years to run, and will not likely complete until at least the 2500 region is seen. So, downside risk is approximately 200 points, whereas the upside over the next several years should still provide us at least 400 points higher from where we currently reside. Therefore, those who are looking at this from a long-term perspective may want to consider hedging their long positions once we see a break of 2064SPX. Let's keep our eye on the ball and remember that we are still in a long-term bull market.
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