Conditions appear to be favorable for a re-test of the low in about a week. A cluster of cycles due to bottom in that time frame should bring about enough downside pressure to extend the decline which started on Friday. The Point & Figure chart pattern can also be interpreted as capable of projecting a move down to the 2560 level.

This move should complete this phase of the correction, but not the entire correction, which is unlikely to be over until the 40-week cycle makes its low in May. We should also be prepared for SPX to make new lows in that time frame. At least, this is what the congestion that took place at the 2750 level suggests.

After that, the bulls should regain control long enough to attempt making a new all-time high before conditions begin to favor the bears, once again, as we enter the fourth quarter of the year. We’ll discuss that when the time is right. For now, the market action over the next couple of days should let us know if our anticipated scenario for the rest of the week will turn out to be correct.  

Since bottoming cycles are usually accompanied by a news background which is used to justify the market’s action, it would not be surprising if China sees Trump, and raises him another increase in tariffs over the next few days.

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart

At this point, the 200-DMA and the intermediate trend line from the 1810 low have merged into one and are indistinguishable from each other. After making several attempts to breach the combined support they created, the bears finally succeeded last Monday — but only for a brief moment. The index immediately jumped back above the support level and rose 120 points before falling like a brick again on Friday losing more than half of that gain. If the index traces out the prescribed scenario over the next week and reverses, we should have a pretty good idea of what kind of rebound to expect before the correction resumes and comes to an end at point C.

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