Action suggests 1700 on the S&P more likely than not
* September 8, 2015
Last week, I noted how important the open on Monday was for the next larger move in the market. Without a gap up last Monday, we seem to be setting up in a structure that will take us down into the 1700s in the not too distant future.
When the market did not gap up on Monday, it took away the only likely bullish potential we were seeing on the chart. Once the market settled down, it provided us with a nice short setup in the afternoon on Monday, which I noted in my live video that evening should provide us with a 30-point decline.
The market had a nice present for us when it gave us 60 points to the downside rather than 30. That setup made it clear that the more bearish patterns were the ones upon which we should be focusing. The market was even more kind to us in providing us set ups for another 40-plus points throughout the week. This has truly become a trader's market.
Currently, there are two main patterns upon which I will be focusing over the next two months. The first calls for consolidation and volatility within the 1880-2030SPX region before the market sets up to drop as low as the 1705-1740SPX support zone.
In the shorter timeframe, if we are not able to move through the 1933SPX level this coming Tuesday, it suggests that we will see yet one more decline to complete the red c-wave of the larger-degree (b) wave. The ideal target for that c-wave is the 1880-1885SPX region. As long as that region holds as support, I will be looking for the market to set up in a strong rally over the next week or two which can take us back towards the 2000-2030SPX zone for a larger degree (b) wave. That will be the set up for the market to "crash" 300 points into the low to mid 1700s. Once the (b) wave has confirmed a top, we will be able to pinpoint that downside target much more accurately. This pattern is presented on our 60-minute SPX chart linked below.
The alternative count is much more immediately bearish and is presented on the attached 60-minute September E-Mini S&P 500 Future ESU5, +1.67% chart. It would become operative if we see the market break down below the 1880 level, with follow through below the 1867SPX level, and will be pointing us directly toward the low to mid 1700s to complete a larger-degree wave 3 off the recent highs in the c-wave of this larger-degree 4th wave. This would then set up a multi-week rally/consolidation in the 4th wave of this c-wave back toward the 1860-1880ES region, setting up a drop to the final lows in the 5th wave of the c-wave of the larger-degree 4th wave likely sometime in the late fall.
So, while the market made its intentions clear that lower levels were much more likely in the coming months, I highly suggest you respect that we may still see some strong whipsaws in the coming weeks, and chose your trading setups judiciously so as not to be caught on the wrong side of a major move. While we have been on the correct side of each of the moves over these past weeks, we are going to maintain a healthy respect and caution as we enter and exit our trade setups over the next few months. Also, should a more immediate bullish perspective resurrect, I will certainly bring it to your attention.
Lastly, I want to reiterate that I still believe this is only a larger-degree correction in the market. After looking at a number of individual stock charts, as well as the larger timeframe charts on the overall markets, I believe there is still more life in this bull market over the coming years, but we may have to endure lower levels before the resumption of the bull trend.
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