The market continued to sell off early in the morning, then some indices bounced into positive territory before tumbling again into the close. Overall, the decline from the S&P 1220 high is a bit sideways for my liking if the big wave [3] or C is underway. But that can quickly change as the structure unfolds. If wave [3] or C were underway, I would expect more of a sharp downward trajectory instead of all this swaying back and forth we're seeing here. But that's just a "feeling" and therefore almost meaningless when it comes to trading. What is of meaning is what can be illustrated and proven with data. Above you see an hourly S&P cash chart. Since I don't like the nature of the way the index is unfolding to the downside, I wanted to point out what's important; and that's the fact that the 3 declines from the 1220 high have all been composed of 5 waves. So this is elementary EWP telling us the larger trend is still down. Also, the series of lower highs has remained intact. So regardless of whether or not we're in wave [3] or C right now, as long as the market continues to decline in 5 waves and make lower highs, the short term trend is down. The most recent high that should remain intact is the one at 1205.13. Under the current structure here, I see little chance of 1205.13 being exceeded, and still being able to count a larger impulsive decline from the 1220 high as part of wave [3] or C. So a break above 1205.13 would make the chances of wave [3] or C being underway extremely unlikely. As I said yesterday, as of right now only a break below 1045 would confirm that wave [3] or C was underway.
Another thing to note in the short term is the price action today. Yesterday I stated that, "...I expect a drop to at least the 38% fibonacci level and prior congestion area of 1150-1160." The S&P dropped to 1158.15 this morning, right in the range I mentioned yesterday, and then reversed where it wasn't touched again for the rest of the day. This type of behavior when reaching a target range, along with the fact that it is possible to count the most recent decline as five waves complete (see above chart); it leaves the possibility for a larger rally tomorrow, and/or perhaps Friday when the jobs number comes out. A good target range for a short term bounce would be the 1180-1185 area. From there I'd be looking for a top and reversal with a stop level just above 1205.
So there you have it. The market is not declining as sharply as I'd expect from a wave [3] or C, but evidence still supports the bearish view for the short term at least. I won't trade based on "feeling", I'll trade based on what the market tells me. And right now the market is telling me the larger trend is down as long as the S&P stays beneath 1205.13 and it keeps declining in 5 waves. Hopefully the market can continue it's overall up-down sequence and I can continue to trail my stop loss downward. In doing so, it won't matter whether wave [3] or C has started or not because I'll make money on the short term analysis anyway.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.
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