The S&P 500 is heavy after yesterday’s break below the bullish trendline since July, a near term negative sign and suggesting at least some further downside over the next few days/week. Note too that the market is overbought after the sharp gains since March while the macd has just given a new sell signal. However, there are no signs “patternwise” that a more important top is in place, while the market also be forming a large rising wedge since March. These patterns break down into 5 legs and suggests near term weakness toward the base (currently at 959/963), before a final upleg to new highs after (within wave 5, see “ideal” scenario in red on daily chart below). Also, sentiment has quickly shifted to the negative side after the last few days of declines, but is generally not the case at important turning points (contrary indicator), and in turn adds weight to the view that an important top is not yet in place. Near term given the somewhat limited downside potential and risk for a good sized countertrend bounce along the way lower, its not seen as a good risk/reward in trying to catch the next few days/week of potential declines (unless trading with a very short term time horizon, to short in regards to these emails). So instead for now, would be patient for a better entry ahead (potentially on the long side a few days/week ahead, and at lower levels). Support before the base of the wedge is seen at 979/981 (mid Aug lows), while resistance before last week’s 1038 high is seen at the broken bullish trendline from July (currently at 1018/1020). Note only temporary resistance on the Aug 6th short at 993 (and 13pt fall) before stopping above the bearish trendline from early Aug (then at 1008, closed at 1026).
Longer term no change as the 5 wave fall from the Oct 2007 high at 1576 continues to argue that the gain from the March low at 667 is a large correction, and with eventual new lows after. However as been warning, there are no signs of a top of that magnitude and suggesting further upside first. But the potential rising wedge since March does suggest that a major top may be getting close (still scope for a final upleg, see shorter term above), as these are seen as reversal patterns that resolve sharply lower (see “ideal” scenario in red on weekly chart/2nd chart below). So for now for the longer term, would let this potential wedge play out, but will be looking for signs of a more major top on another upleg to new highs over the next 4-8 weeks.
