The S&P 500 last week managed to draw bulls back into the market. S&P has reached the 61.8% Fibonacci retracement of the entire decline from 1897.28. The decline can be counted as an impulsive downward move with the 5th wave being the shortest as seen in the first chart below. The upward bounce is clearly not impulsive and in three waves, has reached a price level where bulls start feeling strong again, late buyers come in and -- usually -- is a turning point according to wave guidelines.
What To Expect
Now I expect the index to come downwards once again and this time I expect 1800 not to hold. I expect the index to break lower toward 1760. As when the index was making slight higher highs without making a new high in the RSI, I was bearish saying that a correction should be anticipated. This time the same holds, but in reverse. We should expect a lower low in the S&P index and a divergence in the RSI to have some clues for a potential upward reversal. So we still believe that above 1850, bulls have more to lose and there is an increased chance of a break below 1800.
Our longer-term view remains bullish as we believe we have just started a deeper-than-normal downward correction that will bring S&P back toward the lower wedge boundaries as shown in the chart below, which shows this upward-sloping-wedge channel that we expect to see a challenge of the lower blue trend line.
Of course it is also important to place a stop to this scenario and trade view. This stop is the all-time highs. This scenario will be canceled if 1900 is breached upward. If new highs are made, then the downward correction will be over and a new upward trend toward 2000-2200 will have started.
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