Market On The Edge But The Bottom Has Not Fallen Out Just Yet

This morning after the CPI numbers were released we saw the market move higher only to be rejected as we entered the retrace zone for the wave ii/b which came in at the 4517-4573 zone. We then proceeded to break the lows that were struck yesterday at the 4460 level but just a few ticks only to move up off of those lows as of the time of this writing. While the five down off of the 4608 high has given us the initial signal that we have indeed put in a larger degree top the very small retrace higher this morning followed by a break of yesterday's low is leaving a bit of question as to whether we will still see a larger retrace to the upside for a more standard wave ii/b or whether this is going to see a rather small wave ii/b before beginning the wave iii/c down off of the highs.  While this would certainly be more proportional to see a deeper retrace higher before beginning the wave iii/c down the break of yesterday's low has certainly opened the door for this to have already begun the next leg down for the wave iii/c. I will lay out the parameters below for the micro count and levels to watch for as we move through the next few trading sessions. 

As I noted above the wave ii/b would have better proportions to see a move higher into the 4517-4573 zone overhead. So although we did meet the minimum retrace with this morning's move from a proportion standpoint the wave ii is still very small. Now this is not to say that we have not already topped in the wave ii at today's high however a push back higher would give us a better-proportioned wave ii. 

If we do not move higher but rather break down under the LOD and then through the 4433-4411 zone it would be the initial signal that we have already topped in the wave ii and have begun the wave iii/c down. From there the 4375 level would act as the next key support/resistance level to break to further confirm that we are in the wave iii down. If we break that 4375 level then we would still need to see a full five wave move of one larger degree to further confirm that we have indeed topped in all of the green wave b. 

So while the micro path is still a bit up in the air the five down off of the highs is going to keep the near term pressure to the downside and this will remain the case as long as we remain under the resistance zone noted above.