The market action continues to suggest that we are in a mild corrective pattern although, with the cycle lows still several weeks away, we should see lower prices before the correction is complete. Estimated date of lows and price targets for SPX have already been determined through P&F and cycle analysis, and we must now closely monitor the market action to make sure that our assessment is correct, so that we can respond quickly to any deviation from the anticipated market path. The action into Friday’s close is reassuring since it created a new congestion pattern which gives a confirming count to the one formed at the 2381 level. This makes the target for the low even more reliable. But now that enough re-distribution has taken place, we need to extend the decline from the 2375 secondary top. This is what my indicators are currently projecting and, if they turn out to be correct, a resumption of the downtrend should start immediately and could extend to a new low before the next consolidation takes place.
Daily chart
The SPX phase which started at 2084, and which is a part of the longer trend from 1810, came to an end at 1400. It is represented on the chart by the brown channel which has a solid line on top and a dashed line on the bottom. Since the high, which was characterized by an exhaustion gap taking the price to its 1400 projection target, the index has been under a consolidation/correction which is now approaching the bottom line of the channel. Because the high represents the structural completion of this up-phase, it is expected to move outside the channel before the next one gets underway.
We can arrive at a pretty accurate measure of price retracement during a phase correction by using the Fibonacci sequence. More often than not, the retracement will fall between .382 and .618 of the previous uptrend. The current phase went from 2084 to 2400, or 316 points. The price retracement for this correction is unlikely to be more than approximately .382 of 316, or 121 points. This is verified by a P&F count of the top distribution pattern taken at the 2381 level. Very often, there will be a subsequent re-distribution pattern at a lower level which will give a confirming count. The congestion pattern to the right of the initial 3/27 low is giving us such a confirming count, providing that it stops at Friday’s high and that we start to extend the decline on Monday, without adding to it.
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