The action over the past week was decisively bearish. The market continued the downside movement started 2 weeks ago and declined in all 5 trading sessions reaching a 70 points decline in 2 weeks and more than 100 points lower vs. the August and early September peak. Continuing the bearish signs, the market broke decisively below the trend line connecting the last significant lows (the one from February and the one from June). But of course, the real question is: what now? Will the market continue lower or is a bounce in the cards?
Looking at the cycles, we can see the same bearish signs: the weekly support level on ES was broken, despite it having higher odds of holding. YM also broke its support, albeit only marginally (shown on chart). The directionality tool did provide a nice warning that the bounce after the initial decline was not going to hold, by continuing to move lower throughout it. It is currently at the minimum value and if a more significant bounce is coming, it will start moving up. We also have a LRE (lower risk entry) for longs on YM and as we can see in the past (highlighted on chart) these have the potential to trigger a big bounce. A 2nd consecutive one triggering next week will definitely be something to watch for.
As we were mentioning last week, the daily cycles were bearishly inclined and the market delivered just that. YM was in a confirmed impulse down and it had triggered a 2nd bearish retrace (BR) resistance level which normally needed a 2nd END support lower. The market moved decisively lower, so now we are on the look-out for a support level to trigger. ES also triggered (late) a resistance just above the previous support and then a new support lower, which was slightly broken. Going forward it will be important to see when a support level will trigger on YM. That would be a big warning that the decline is at least pausing for a while.
Revisiting our potential Elliott Wave ending diagonal on the NYSE Composite from previous updates, it is very obvious that we've broken the rising wedge pattern and have begun to sell off. This brings in a demarcation point where the diagonal structure becomes invalid because in a contracting ending diagonal, wave 2 must remain shorter than wave 4. We've marked that level where that is no longer the case and at which point we can begin looking for much lower prices as the next viable structure would bottom in the 9600 to 9500 area. Futures are markedly green at present so a challenge of the upper area of the declining wedging pattern is a relatively good probability at this point. Good luck this week.