Although yesterday’s market action was similar to
the previous Monday’s, with both featuring an early sell-off followed by a
strong recovery, the next day’s reaction was the exact opposite. Whereas last
week the strong Monday afternoon recovery carried over into Tuesday, and set
the stage for a week- long rally, yesterday afternoon’s rally was met by a
sharp opening sell-off.
The SPX dropped to 1875.91 within the first
fifteen minutes of trading, and after a short period of choppiness, rallied
back to 1881.27. That rally was short-lived, as the index dropped to 1874.88,
bounced back to 1878.78, and then fell throughout the day until it reached
1868.19. A small bounce took the SPX to 1872.37, but again was followed by a
drop into the close to 1867.77.
Today’s action would seem to confirm yesterday’s
count of an inverted corrective wave completing at 1885.51. Rather than
continuing on to complete the last three waves from the 1891.33 high, the SPX
appears to be setting itself up for a further decline. If my count for this
decline is correct, the index has now formed a series nested waves from that
high. The highest degree first wave completed at 1880.58, which was followed by
the inverted corrective wave to 1885.51. The next degree first wave completed
today at 1876.03 and the third degree first wave at 1874.88. This set-up would
indicate a sharp decline to follow. I am still looking for support at 1849, and
then 1775.
If my short term count is wrong, there may be
support from just below current levels down to 1864. A small pullback into that
range, followed by a bounce above 1872.37 could lead to a strong rally, but for
now it appears that this decline will continue.
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