Eight weeks after completing the A-wave of the corrective pattern on 3/27 at 2322.25, the B-wave registered a high of 205.77 on 5/16. It was followed by a quick two-day drop of fifty-three points, and a rebound of thirty-six points, one day later. All of this took place last week, with SPX closing at 2381.73.
Structurally, there are two possibilities: We have now completed either a-b or 1-2 of the C-wave, with the latter being favored because the main cycle of the cluster which lies in front of us — if it makes its low on schedule — is estimated to bottom on 5/31; and we need to use up almost two weeks of remaining cycle time.
Since wave 2(?) retraced just a little over .618 of the decline from point B, and gave up ten points of its bounce in the last hour on Friday, it’s a pretty good assumption that we have already made a short-term high and started on the next phase down. The close did not bring a confirmed sell signal at the hourly level, but the weekly trend is still correcting, and the daily remains in a downtrend. Everything considered, wave C should bring about a new low to the correction.
Analysis: (These Charts and subsequent ones courtesy of QCharts.com)
Daily chart
As we discussed before, we are undergoing a correction of the uptrend phase which started at 2084 and ended at about 2400. There was a count taken at the 2084 low which targeted a top at 2400 with a possible extension to 2410. The 2400 count was filled exactly at the first top and, after wave A of the correction completed at 2322, we finally got to point B nearly two months later. The index did not quite make it to its extension projection, failing to reach it by about 4 points. Close enough for a count which was taken nearly five months ago, and 325 points lower.
The corrective pattern is forming within the confines of the intermediate channel from 1810 (blue lines), and at the top of the bull market channel (brown). Parallels to these major trend lines have been very useful in determining the various starting and stopping points of the minor trends within the structure. The main body of the pattern is trading between the two parallel brown lines, and the index is expected to break below the lower one before the correction comes to an end. The distribution pattern which has formed at the top has given us counts which will help guesstimate the final price low of the correction. There are a couple of possibilities which fall in the vicinity of the horizontal dashed red lines. A confirming count is in the process of forming and, as soon as we are certain that Friday’s uptrend has come to an end, we should be able to select the one which comes closest to being correct.
