When we called for a top to the rally last Thursday, we expected the market to pull back for a wave 2. However, what I did not want to see was a deep wave 2, which is what we seem to be getting in the SPX.
With todayâ€™s re-test of the 2072SPX level, the market has provided us with a very deep pullback, which is not normally seen in a wave 2. That has me a bit concerned at this time, since a very bullish market would not be pulling back so deeply for a wave 2. But, until 2072SPX is broken, that is how I am going to count it.
So, for now, as long as we hold over todayâ€™s low, my next target higher will be the 1.00 extension at 2115SPX. If the market is able to make it to that level, then we will be faced with a big test, and that will be on the pullback from wave 3 of iii. As long as the market does not break below 2098SPX (.618 extension), after striking 2115, then we should be on our way to the 2150 region by the end of the month.
However, if the market is unable to hold over 2072SPX, or breaks below 2098 after striking 2115SPX, then it gives us early warning that the larger degree 4th wave to 1800 may be upon us. Should we see such a break down, I will then provide the guidelines as to what I will want to see for the market to take us to the 1800 region. But, I will note that even on a break of 2070SPX, there is still one more bullish possibility on the chart, but I am not going to have a lot of confidence in it, until the market goes a long way into proving that potential.
Lastly, as I have noted many times before, until the IWM breaks support, it is still set up quite bullishly, so I cannot get bearish until I see at least the 123.45 level give way in the IWM, with a drop below 120.25 confirming that we are in the larger degree 4th wave.