Market's Direct Push Lower Opens the Door to a Bottom Forming
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Yesterday, the market gave us a relatively clean five-wave move to the downside off of the highs that were struck in the morning. After that initial five-wave move, we should have seen a corrective retrace higher to confirm that we were indeed dealing with an initial five-wave move down, thus setting up further follow-through in the form of the third wave down.
Overnight and today, we saw the market continue to grind lower after seeing a very shallow retracement, which, rather than confirming the initial five-wave move, made that initial move much more ambiguous. Furthermore, the entire move down off of yesterday's high is now approaching the ideal target region for a standard ABC move off of the 10/6 high.
With the inability to give us a clean structure to work with, I am becoming much more cautious about seeing the market make a more sustained and direct break lower, and this structure now looks to be setting up at least a local bottoming pattern before seeing any sort of direct break lower.
When the smaller-degree counts start to become less clear, I will zoom out to the larger pattern, and in this case, we have already reached the 76.4 extension of the initial move down off of the highs on the SPX. Remember, if we are following the yellow count, we would be looking for a corrective move lower, so we could certainly be bottoming in the wave a of that larger wave ii.
Furthermore, while I think it is less probable at this point in time, we have not fully invalidated the blue count. It would still look better for this to make another lower low, even if we are forming a local bottom, but the failure to see a corrective retrace after what was a decent five down, and now the failure to see strong follow-through lower, has me looking more and more at the potential for this to be forming at least a local bottom and potentially a larger bottom in that blue wave b, rather than seeing a direct push lower in the larger wave c.
Adding to the case for seeing at least a local bottom is the pattern on the VXX, which is looking much more like an ABC up off of the lows, with the C wave potentially coming in the form of an ED. Furthermore, I can make the case for a fairly clean 1-2 i-ii setup on the RTY to the upside, which gives me further pause as to the SPX seeing more of a direct break lower.
So, while the smaller-degree pattern on the SPX may still see another lower low, I think this is setting up to see at least a retrace higher as part of the larger yellow wave b, with an outside potential to still see a push back over the highs that were struck on 10/5.
If we were to see a direct and strong break of the 7563 level, that would suggest we are seeing a more direct and sustained break lower. However, as long as that level holds, I have to lean toward the market seeing at least a bounce higher before any strong and sustained break lower.
