With today’s break of 2830SPX, the market has finally opened the trap door. The question now is how the market is going to fall through that trap door. And, to be honest, the probabilities that it will do so have become quite high.
With the trap door now having opened, the market has become quite dangerous. In fact, it can easily set off a waterfall-type decline at any point now, similar to what was seen in the fall of 2018, in January of 2016, in August of 2015, and in August of 2011. And, we even have the minimal number of waves in place to support that potential.
The minimal number of waves being in place is highlighted by the blue count I added today. At this point, the market will have to prove that to me by a break down below 2785SPX, and follow through below 2775SPX. Until that happens, I view this as a lesser likelihood. But, as I noted yesterday in the chat and in an alert, it is hard to be looking up for even bounces when the market is set up to drop in what can be the heart of a 3rd wave down.
At this time, my preferred structure seems to be the green count, where we are now just completing the wave (i) of 3 down. That should lead us to a multiple day corrective rally in wave (ii), which will then resolve lower in the heart of a 3rd wave down.
The last alternative I am tracking is the yellow alternative wave 2. As I noted earlier today, if the market is able to hold support in the 2808SPX region, then we have an a-b-c down from the 2892SPX high, wherein a=c. That would be a strong indication that this is a [b] wave decline in a larger wave 2 flat. That would mean that if we see an impulsive rally off these lows it would suggest we rally in a [c] wave back towards the .618 retracement of wave 1 down in the 2900SPX region. Again, if we hold the 2808SPX region, and rally strongly off it, this alternative develops higher probabilities.
While this would have been soooo much easier if the market had provided us with a clear 5-wave decline from the top of wave 2, that is not what it gave us. Rather, the overlapping decline has left the door open to the several potentials I outlined above. But, the main takeaway is that the market is setting up for a sizable decline, and the question is a matter of the micro path the market takes through the trap door – blue, green, or yellow. But, the greater probability structures are all pointing down now, one way or another.
I would imagine that tomorrow should provide us a clearer indication of which paths the market is taking over the coming weeks based upon the guidelines I have outlined above, and we can hopefully go into the weekend with a pattern that stands out.