Running Out of Steam

On Tuesday, the S&P 500 suffered its fourth decline in five sessions, with a loss of 0.2%. Declining issues were only 10% greater than advancing issues, but up volume was about 10% greater than down volume. Moreover, the index recorded a higher high and a higher low compared to Monday. In short, Tuesday’s results were “mixed.”

Taking the hourly chart at face value, we see a fairly clean five-wave 9/23-9/25 decline, followed by a subsequent three-wave rally. This suggests waves A and B, with a “C” wave decline to lower reaction lows yet to come. A decline back below 1041 will confirm both a “C” wave and a complete pattern from the September 2 low.

That said, the decline could be the “C” wave of a “flat” correction that began on September 17 at 1075. If so, a rally through 1075 would be a continuation of the larger rally pattern.

S&P 500 with Daily Coppock Curve
However, while the uptrends from both the March and July lows remain intact, near term momentum is weak. In fact, momentum has a bearish bias for 20 of the 24 S&P industry groups, and this majority bearish condition could persist into October. Thus, a quick rally through 1075-1080 will likely be met with a number of divergences that could very well transform a near term correction into an intermediate decline.

In addition, the fact that the current 22-week cycle is now 12 weeks old suggests that the post-July rally is running out of time as well as momentum – and waves. Thus, a rally to or through 1075 may only delay the inevitable.

The 9/23-9/25 decline was 38 S&P points. If 1041 is violated, we will be alert to the possibility that the resulting “C” wave will be 38-63 points in magnitude, Using today’s high near 1070 as a reference point, the potential "C" wave objective would be on the order of 1032 to 1007. That would be more than enough to violate the post-July uptrend line, but it would still take further weakness through 992-991 to lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

First resistance is 1075-1080. Second resistance is 1121-1156.