The Lines In The Sand
This 10 year chart of SPY shows the primary market trends that are in effect. The market is currently trading above the bear market downtrend line (1) but it appears to have created a new downtrend line (2).
We can now see a well defined left shoulder, a head, and the left side of a right shoulder. The shoulder line is at 1050 that historically has been a transitioning area between up and down markets.
We are definitely heading to the shoulder line. The question is what will happen when we get there. If the market can reverse to the upside on good volume that would be bullish and would negate the head and shoulders pattern. A break through the neckline, however, has a projected downside to 900.
According to Elliot Wave Theory, market declines occur in 3 waves. So far we have one wave down, a smaller wave up and the third wave down should be the longest. I believe the market is headed lower and the decline is going to be contained within the 2 downtrend lines 1 & 2.
S&P 950 is another major area of support as anything below that is new bear market lows that I do not anticipate at this time. Therefore I expect the S&P to drop to 950. A drop to 900 would be really ugly and constitute a 27% correction from the top.
