Longer term in the S&P 500, the 5 wave fall from the Oct 2007 high at 1576.06 (see numbering on weekly chart below) argues that the gain from the March low at 666.92 is a large correction, and with eventual new lows below there after. I stress the word “eventual”, because the shape/pattern of this large correction remains in question. Could see another few months of upward ranging before forming a major top, or could see another 6-9 months of wide ranging (with little more on the upside), before the new lows below are seen. But in either case, eventual declines below 666.92 are favored.
Shorter term, the market is nearing important resistance at 1012/15 (38% retracement from the Oct 2007 high at 1576.06). Also, the market is overbought after the last few weeks of sharp gains, appears to be forming a small, rising wedge/topping pattern over the last few weeks and the Nasdaq 100 etf (qqqq) is currently near important resistance just above $40 (50% from its Oct 2007 high at $55.07), suggesting that a sharp, downside resolution of the wedge may be nearby. On a very short term basis, there is scope for another few days of chopping within the wedge, “ideally” allowing the ceiling (currently at 1003/08) to reach the 1012/15 area before resolving lower (see “ideal” scenario in red on daily chart/2nd chart below). So for now, would use a close below the base of the wedge (currently at 986/988) as a sign to short. Note that these patterns will occasionally resolve to the upside. Though not currently favored, there remains lots of money on the sidelines and professionals who are behind their benchmarks who could be forced into the market. So would also buy on a clear close above either the 1012/15 area or the ceiling of the wedge, which ever is higher (ceiling rises over time). Downside support is seen at 956/958 (June 11th high), and the important bullish trendline from March (currently at 910/912).
