Reluctant Selling

The market continues to work itself lower at a snail’s pace. If this continues for the next three weeks, this will turn out to be a much more limited correction than originally anticipated. The trick in trying to evaluate its extent is to determine which part of the top distribution pattern will give us the correct projection. Depending on which area we choose, it could be anywhere from a little over a hundred, to a three-hundred-point decline (and counting). The former is starting to look more and more likely, particularly considering the disjointed nature of the overall market, with only the major averages seemingly being coherent.  

Unless! The smaller correction may only be the tip of the iceberg and that, after it is over, the next rally fails to make a new high but simply adds to what turns out to be a long-term distribution pattern. For now, I still believe that an eventual move to 2240 is possible, based on the accumulation which took place at the 1810 level. However, if the rally which follows the current correction fails to make a new high, and a new phase of weakness begins, I may have to change my opinion.  

There are some, like Tony Caldaro, who believe that a new bull market has been under way since February 2016. Tony does not make snap judgments, but bases his opinion on historical precedents. However, for now all long-term forecast are pure speculation. The market reveals itself phase by phase and, with proper analysis, we do not have to be surprised by the next move. We are currently in a correction which, when complete, should be followed by an uptrend, the nature of which we will analyze when it takes place.  

Analysis

Daily chart

The perception that we are making a rounding top was supported by last week’s SPX action. We are now able to connect a declining top with three trend lines which are trending at a steeper and steeper angle. After the first decline from the top formation, we started a sideways move which is beginning to look more and more like a triangle. If this is the case perhaps, after a little more weakness, we should get one more rally to the last declining trend line and, on the next move lower, we should convincingly break through the dashed line and, at a minimum, proceed to the vicinity of the blue parallel drawn across the Brexit low.