In last Monday’s article, I expected to see downside during this past week.
But the S&P 500 Index was unable to break below the important 2,700 region of support we said was the key to a larger pullback. When a bull market is able to hold support, it usually turns back up. So far, the bears have not shown an ability for any downside follow-through.
The easy part in the market was completed by the rally through the 2,727 region for the S&P 500 SPX, +1.18% Since then, we have seen much of the whipsaw action that accompanies corrective structures, and that is what we expected this past week.
Yet, with the market’s refusal to break below 2,700, we are now going to have to question whether all of wave (4) has indeed been completed, and if we have begun the next rally to 3,000-plus. Again, I find it hard to believe that a year-and-a-half-long wave (3) will be corrected by a two-week wave (4). So my primary expectation is that we will retest the lows we struck earlier in February, and may even break those lows before we rally to 3,000-plus.
But I will not be maintaining a bigger bearish bias if the market indicates it would not be appropriate. As I outlined during the past week, if the market would be unable to break below 2,700, it would open the door to rally back up toward 2,800. And if we are unable to see a sustained and impulsive break of the 2,730 region early in the coming week, then it would seem the market is heading up toward the 2,770-2,800 region.
So let’s review where we stand, based on the step-by-step guidance I sent out last week. If the market is unable to break below 2,730 early this week, then it keeps pressure up toward the 2,770-2,800 region to complete the larger degree b-wave, which has been the larger-degree target for this b-wave since we began this rally from below 2,600. The only question is whether we see the more indirect path to the b-wave target with a break down below 2,730, which is represented by the yellow count, or if we will be heading up toward 2,800.
If we do see a more direct path this coming week toward our target near 2,800, then it will clearly make me question whether wave (4) has actually been completed at our minimum target for wave (4) between 2,424-2,539 (as the low struck was 2,536). You see, a direct move to the 2,800 region can be wave 1 of wave (5) pointing to 3,000-plus. And the only way we will be able to distinguish between a c-wave back down to the 2,539 region, as compared to a corrective wave 2 (in blue), will be the manner in which we decline from the 2,800 region. But the decline off the 2,800 region will likely be a big buying opportunity.