Yesterday we saw the market hit the upper end of resistance before turning down with a fairly sharp initial drop. Since that time we have seen the SPX in particular provide us with some rather sloppy action which is not terribly unexpected given that under both the green and yellow counts we are looking for a corrective move lower to complete either a larger wave (2) or (b). So from here we still need to see a break of the larger support to confirm that a top is indeed in place and the market has begun its larger pullback.
That larger support level at this point in time remains at the 3985 level on the SPX and moving below this level will give us the next signal that we have indeed put in the larger degree to for the wave (1) in yellow or (a) in green.
While the SPX has been a bit sticky up in this region, I do want to note that the NQ and RTY seem to be leading the path lower at this point in time having already broken their respective lows from yesterday's initial move down. So while 3895 still remains an important level to break on the SPX, the pattern that I am watching on both the NQ and RTY is more supportive of a top being across all of the indexes. We do however need to continue to monitor the pattern and price level on the SPX chart itself to further confirm a top.
On a smaller degree timeframe I am viewing the 3957-3940 zone on the SPX as a key micro pivot and should we see that level taken out to the downside it would give us the initial confirmation that we have begun at least the wave (c) of a down as I am showing on the 5 min chart. This should then be followed up with a break of the 3929 level which could then open the door to a fairly direct move down into the 3882-3853 region below. This would then be nearing the 38.2% retracement of the move up off of the October lows which would be our initial target region for the wave a down off of the highs.
If we are unable to break down under the 3940 level but rather turn higher then it would leave the door open for this to still be forming a larger wave (b) before seeing a breakdown under yesterday's lows and ultimately back down toward a larger degree support level at 3895.
I want to note that because we are likely entering a corrective stage of this move up off of the lows, we need to expect very sloppy price action with a lot of whipsaw. During this type of price action, larger degree support levels are going to be more important that smaller degree patterns. Furthermore being patient and nimble until this corrective price action resolves itself is also key.
From a bigger-picture perspective, however, the bottom line remains unchanged from what we have been noting over the past several days. That is as long as the SPX can hold over the larger degree support at the 3800-3700 zone on the next pullback, the next rally should take us towards the 4300 area into the end of the year and possibly the early part of next year. So for now being patient in this region and waiting for the market to first confirm that we have topped with a break of that 3895 level.