Market Is Setting Up For Lower Levels
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Today we saw the market move lower, breaking through all of our smaller-degree support levels, which were keeping the path to new highs per the blue count in play. With the move lower today, we now clearly have three waves up off of the 10/16 low, which is making a push to new highs per the blue count unlikely at this point in time and is far more suggestive that we will see further downside follow-through before any lasting bottom is found. So while ideally we see a retrace higher before a sustained break lower, with what can count as five down off of yesterday's high, the odds of seeing lower levels ahead are much more likely.
As shown on the ES chart, we are currently testing the low that was struck on 10/16. Ideally, I would prefer to see a deeper retrace from around these levels to give us a deeper wave 2 before breaking directly lower. Under this case, overhead resistance comes in at the 7730-7782 zone. As long as we remain under this zone and the action to the upside remains corrective in nature, my base case will remain that we have indeed begun the wave c down.
If we do see a retrace higher that holds under resistance, I will count that as a wave 2 of that c down, with a wave 3 down yet to come. That should take us down toward the 7600 region for the wave 3 and the 7550-7450 zone for the wave 5 of that wave c. We can better define these targets when we can confirm a top in the wave 2.
If we do not see a retracement higher but rather break directly lower and move under the 7662 level, followed by a break under the 7638 level, then we may have already topped in the wave 2 at the 7746 level that was struck this morning after the open. The target region below for the wave c under this case would remain in the same zone as noted above, but I will better define these levels if we do indeed see a direct break lower.
So for now, the bottom line remains that as long as the price action to the upside remains corrective in nature and we hold under resistance, the pressure will remain down. Should we see a break back over resistance followed by a break over the 7814 level, I cannot fully rule out that we are still working on a larger wave b before breaking down, but as of right now, that remains an alternate scenario.
