After being range bound for quite a while the market finally broke out, or better said broke down. The brutality of the decline was surprising, the market losing approximately 80 points in just 2 days. As the readers of the mcm Weekly Newsletter know, we have been expecting a back-test of the 2105 level for a few weeks now and the market delivered just that, although a bit abruptly. Coinciding with the Weekly Newsletter, the Technical Analysis Lab weekly update has been noting since the start of August to expect weakness coming into the beginning of prime trading season with decade, presidential, and historical seasonality all aligning for the early fall season.
The weekly cycles show why the 2105 level is so important. It was a resistance level above which the market broke out and it became an impulse up on ES (after the mcm-MA also broke above that level). And usually, after an impulse is confirmed the market comes back to back-test the break-out level. An interesting fact is that YM has under-performed significantly on the rally and, although it also broke out above the resistance level, it was nowhere close to confirm the up impulse. Also, YM sliced right back below the resistance level on Friday's drop. The current back-test on ES is very important. Holding it and bouncing would be very bullish, while breaking back below would reverse the up impulse and cancel the bullish momentum.
The daily cycles show why we were doubting (and still are) the real break-out into an up impulse on the weekly. They have been in a big up impulse ever since it broke out above resistance around 1950 ES. The impulse up has started to unwind with a bullish retrace (BR) and an END, then another and a 2nd END, so it was in a terminal phase, not supportive of a new big up move.
Coming back to the recent past, the daily cycles show nicely the brutality of the decline registered last week. The market basically lost aprox. 80 points in just 2 days and sliced directly through the support levels. In fact ES is now close to confirm a down impulse. As we were mentioning in the mcm Newsletter last week, breaking directly the support levels before resistances trigger is very bearish, although it depends a lot on what the market does in the next 2-3 days. If the break-down is confirmed and the market cannot manage to bounce back to or even above the support levels, then the bearishness will be confirmed. We do have to mention that both ES and YM triggered LREs (lower risk entries) for longs on Friday, so a near term bounce (maybe after a minor new low) would be normal expectation based on that.
There are a couple of options from an Elliott Wave standpoint that we are currently tracking. Although our primary focus is for the S&P 500 and its futures, we do track many other markets as well, one of the those being the NYSE Composite. Weighting a number of various items, expectations are for some near term weakness and then another run at new all time highs, but the depth of the correction currently underway can take a couple of paths as noted above.