After the 20-wk cycle made its low, a little ahead of its normal schedule, there was a rip-roaring rally at the beginning of last week which undoubtedly caused many to doubt that something serious had started, and thought that the market was ready for another new high. But by the end of the week, reality should have set in that something more than a short-term dip was occurring. EWT aficionados warn that 4th wave corrections, especially those of higher degree, can bring a lot of volatility, and this is certainly the way that this correction has started. It can be confusing.
Whether or not the future brings more swings of this magnitude, only the market knows. However, it always tips its hand by making moves proportional to the amount of distribution or accumulation which has taken place prior to the beginning of the trend. At the very top of the market, there was enough distribution to create a P&F count to much lower levels than those already reached. But we may have come to a point where a shorter-term count has already been filled, and a base is already forming for the next corrective rally. If we hold this level early next week, we should get another relief bounce. The positive divergence which is forming in the daily and hourly indicators is certainly suggestive of that, and all we need is confirmation by resisting further selling and getting started on the upside.
Analysis: (These Charts and subsequent ones courtesy of QCharts.com)
The 20-wk cycle found support on the intermediate, blue mid-channel line for the fourth time since April, but it was for the last time. On Thursday, that support was finally breached with some downside follow through on Friday. For the first time since March, we have made a lower-low/lower-high/lower low sequence and, by definition, we are now in a downtrend until the process reverses itself. We have already defined a short-term channel, and prices will remain in the current downtrend until they break above the top channel line. Even if they do, they would have to rise above last week’s high of 2474 to attempt reversing the current downtrend pattern. This is the simplest — but very effective — way to analyze the market trend.