Market Forms a Local Top, but Key Support Still Holding
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Today, the market appears to have put in a local top, trading lower throughout the regular session. So far, the downside structure looks corrective, which provides an early signal that at least a short-term top may be in place. There is also the potential that a larger Wave 1 top has formed. With that said, price remains well above the initial downside pivot that would need to break to confirm a more meaningful top, with even larger support levels below. While this pullback offers an early warning that the rally from the early April lows may be entering a corrective phase, further downside confirmation is still needed.
I am watching 7079 as the first key downside pivot. A break below this level would increase confidence that a top is in place. However, even if 7079 is broken, I cannot fully rule out the possibility that the current decline is simply a larger wave iv within the initial five-wave advance off the lows. For now, this remains an alternate count (shown in purple). Until we see a break below 6941, that possibility will remain on the table.
A sustained break below 6941 would confirm that a larger top is in place. From there, as long as the downside action remains corrective in nature, the primary expectation would be that the market is forming a larger Wave 2 (as outlined in the blue count). If, instead, price action becomes impulsive to the downside, it would open the door for a larger Wave (c) decline. For now, however, I will continue to give the benefit of the doubt to the blue count.
At this stage, patience is key. We need additional price action to clarify near-term direction. With that said, given the impulsive structure off the early April lows, we have relatively clear parameters to guide the analysis, which can be more of a challenge when we are dealing with corrective wave structures.
