A-B-C Correction Unfolding

Market Overview

After the first rally from the 1812 low topped, it was unclear if we had completed the “bear market” rally or if more was to come. The congestion level which SPX produced over the next few days was either accumulation or distribution, but the bias was deemed to be on the downside since the resulting count matched precisely the top P&F projection. For it to be confirmed, however, the September low of 1872 would have to be breached. In spite of a strong attempt to do so after the FOMC statement was released, it held; and a continued oversold rally in oil along with the Japanese move to negative rates finally tipped the odds to an extension of the original rally which is now developing as an A-B-C corrective formation.

Counter-trend rallies are usually very fast and very sharp, as was wave A. Wave C is following the same mode, and by Friday’s close was quickly approaching its projected top. There are, however, two possibilities: Are we correcting the entire decline from 2116, or only that from 2082? It could make a difference of some 15 points. I am currently opting for the lower target because of the count determined by the minor accumulation pattern of the P&F chart, but the market itself will decide over the next few days.

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

It’s probably fair to say that whatever the market is doing, it will not be back in an uptrend until prices rise above the top (red) downtrend line. The channel that has been created with that line as the anchor, seems to be pretty well defining the course of the overall downtrend, for now. It may change over time if the decline becomes steeper, or if a secondary channel becomes manifest — such as the one which delineates the downtrend from the 2116 secondary high.

Back to the red channel! The red dashed lines on the chart are parallels to the top downtrend line. When connected to important short-term tops or bottoms, they appear to accurately define support and resistance levels when price reaches them. For instance, the second highest heavy red parallel from the bottom provided support for the 1812 low. Now, SPX is approaching the heavy dashed parallel which starts at the July 20 high of 2132 (which was the re-test of the 2135 bull market high) and connects several tops and bottoms along its path. It is very likely that it will offer resistance for the current advance, especially since it coincides with my minimum projection for the C wave. Whether this will turn out to be the high of the counter-trend rally, or whether it goes a little higher to back-test the bottom channel line of the long-term trend from 2009, we’ll have to see. Either one would be a logical place for the uptrend to reverse.