Despite the fears of a government shutdown and what it might do to growth in the US, the S&P 500 moved north on Tuesday after falling from 1730 to 1674.99. The index has made a nearly 61.8% retracement of the 1627-1730 move. Our first target was 1688 and our second was 1666. Currently the index has changed its short-term trend to up again and faces a challenge at the 1705-1715 resistance. The index has made a downward move toward 1675 that looks more like a correction. Since the decline is not a clear impulsive wave down, our preferred wave-count labels the decline as wave A of the correction and we now expect for wave B and C to unfold as shown below.
The Possibilities
However there is an alternative scenario that's also possible. This scenario implies that the entire correction is over and we are now heading toward new highs. For this to happen, the index must hold above 1678 for now until we see 5 waves up from 1675. The cloud support as shown below has held and if prices pull back down below 1675, we expect to see a decline at least toward 1660 and why not a test of the critical support at 1630-40.
Price Points
The longer-term trend remains in favor of bulls and we should take note of that and not go 100% short at this level. I continue to believe that bulls have more to lose at 1700 than bears; but no long position should be held if prices break below 1675. If this happens, I expect a new lower low below 1630 to be seen soon after the initial support fail at 1675. If 1630 support fails, I expect the index to move toward 1500.