Saturday, February 13, 2016

MTU Weekend Ed. - Retesting the Low (2/12/16 close)

Stocks retested their January low this past week (Chart 1 and Chart 2). Tech and small caps managed lower lows while the January lows largely held for mid-to-large caps. SP500 also managed to close inside the downward channel since its nominal high, which is bullish on balance.

Chart 3 presents the near term tracking of the decline from 1947.20 in SPX.  The bullish blue scenario is that a five-wave decline ended at 1810.10 whereas the bearish red/gray scenario calls for one more retest of the lows once a small degree wave [4] flat/triangle is complete.

Recent price actions have elevated the likelihood of two of the larger degree tracking scenarios.
First, a fourth wave correction since late 2014 orthodox high in SPX is ending (Chart 4).  This correction takes the form of an expanded flat.  The decline from the nominal high in SPX is its final wave, which takes the form of an expanding diagonal triangle.  If so, those who interpret the next rebound as a fourth wave is likely to be disappointed (see the Second scenario below).
Second, a fourth wave correction from the nominal high in SPX is ending (Chart 5 green) or is subject to one more meaningful up-down subdivision (Chart 5 red).  This correction takes the form of a simple ABC structure where SPX closed inside the channel Friday.