Today the SPX broke the 4408/11 pivot that I had been watching for the past several days giving us further confirmation that we are indeed in the wave iii/c down off of the highs. We are now approaching the next key pivot/support zone which should help give us further guidance as to where we are following the green or the yellow counts. My base case at this point in time remains that we are following the green path but we do still have a bit more work to do to confirm this path with a break of the levels that I will outline below.
As of the time of this writing, we are closing in on the next key pivot zone which comes in at the 4385-4375 price levels. The 4375 level is the 100ext of the initial move down off of the highs. If we are indeed following the green wave iii down then we should see a break through this level and continuation down towards the 4318-4282 zone for the wave iii. From there we still would need another wave iv and v down off of the highs to fill out a larger degree wave 1 giving us further confirmation of a larger degree top. For now, however, as long as we remain under the 4408-4427 zone the near-term pressure is going to remain down per the green count.
If we see the market hold the 4385/75 zone and then move back up over the 4411-4433 zone then it would open the door for this to be bottoming in an ABC down off of the highs as part of the yellow count. In that case, the structure of the move higher would help determine whether we had bottomed in all of the wave iv or simply just a wave a of a larger ABC for the wave iv. I will note however that the count on the Russell 2000 is not overly supportive of this yellow count. This is one of the reasons why my base case remains that we are following the green count at this point in time.
So while this move down has not seen a sharp drop or the velocity that we typically see during downturns we are still following a fairly clean fib pinball pattern. So with that and as long as we remain under resistance the pressure will remain down and my base case remains that we will still see lower levels before seeing any significant move higher.