No Respect

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The S&P 500 fell 2.0% on Wednesday. This was its fourth straight loss; it was also the seventh decline in nine day. The breadth ratio was negative by 14:1 but, since the up/down volume ratio was negative by “only” negative by less than 8:1, Wednesday was not a 9:1 day. Both daily and weekly Coppock Curves have a bearish bias for 23 of the 24 S&P industry groups.

The bottom line to Wednesday’s decline is that the S&P paid very little respect to 1061-1051 (a 50%-61.8% retrace of the rally from the October 2 low) and broke through the post-March uptrend line. This, plus the fact that many – if not most – intermediate indicators are still on the overbought side of neutral, implies that this correction is in its early stages.

S&P 500 with "intriguing" Support Bands

As a result, it is quite likely that 1020 will be violated. If so, that would fully confirm that the July-October rally is a complete pattern. That may be a moot point because the intensity of the decline, along with its apparent impulse qualities, is already solid evidence to that effect. Thus, while the rally pattern from the July low will remain intact as long as the index holds above 1020, it is probably prudent to apply Fibonacci relationships to at least the July-October rally, if not the entire March-October uptrend.

With that in mind, there are two areas of support that could be of particular importance: 958-935 and 884-869. The first is both a 61.8 retracement of the July-October rally and a 38.2% retrace of the March-October uptrend. The second is a 50% retracement of the March-October uptrend and a full retrace of the July-October rally. Obviously, there are other levels (e.g., 1013 is a 38.2% retracement of the July-October rally) that we will use as guidelines, but those two are the most intriguing since they involve two different – and important – wave structures.

Yesterday we suggested that while we could expect at least 50%-61.8% retrace of the S&P’s October rally (to test of 1061-1051), our focus will be on 1020. The index is already in the upper reaches of first support and, as this is written, the market is about to open and further weakness is indicated. On top of all of this, the S&P’s uptrend line from the March low is in the 1058 area.

The 1075-1078 breakdown point is regarded as First resistance. Beyond that, there is a significant amount of resistance at 1086-1095.