As you can see, S&P has gone by almost 1.0 full standard deviation from the price channel it used to respect for years.
Now the question is whether we can call that final A-B-C move up having topped.
let’s measure subwave A up and project its size from the low made by subwave B down:
The minimum target for subwave C up is 76.4% ext. That minimum target was located at 4,263. Last week S&P hit 4,257.
We can say that the requirement of the minimum extension was satisfied.
That is the most conservative extension and typically subwave C of wave 5 up stretches higher, to 100% ext or even 123.6% ext of subwave A of wave 5 up (look at two other fibs that form the Red Target box).
The next question is how far wave 5 can go not to exceed combined size of waves 1 and 3 up. The 100% extension of waves 1 and 3 combined projected from the low made by wave 4 in March 2020 is located at 4,399. So bulls pushed up to the limit.
The next important question is whether we can count five micro waves behind that subwave (C) of ( 5 ) up. First we check an internal micro structure of the first leg up off the March 2020 low labelled subwave (A) of wave ( 5 ) up. We can see five waves up off the March 2020 low that together comprise subwave (A) of wave ( 5 ) up.
Off the low made by that tiny subwave ( B ) down S&P produced a clean five wave up structure,
You can see that S&P has been testing the Red Target box for several times since April 2021 but bulls failed to make any significant progress.
On Friday bears managed to break under the upward sloped trendline (the blue line) that managed to defeat several bearish attacks. We can assume that S&P has made the top of the five wave up rally that started in March 2009.
However, at this point bears have NOT violated any macro support yet. And we do not have confirmation that the bull market has made a lasting top.
We can’t be 100% sure if S&P has finally made the top or only a temporary top in wave ( iii ) up.
But we can expect that the low made by the previous pullback at 3,730 should work as a strong support.
I would pay attention to two unfilled gaps:
1. the unfilled gap up 4,121.97 – 4,116.93 dated back to May 20th, 2021.
2. the unfilled gap up 4,034 – 4,020 dated back to April 5th, 2021.
This move down should be able to fill both gaps.
Many traders will be watching interaction of S&P with its 50 Day Moving Average that is currently located at 4,044.
That reinforces my bearish expectations shared last Thursday. I think the next target for this decline is 4,050 – 4,000. But that does not mean S&P would go down to 4,050 in a direct way. We can get another pullback in wave -ii- up before S&P and ES plunge under 4,100.
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