The S&P market broke down last night invalidating Tuesday’s buy setup and at the same time confirming that the bears are in control. Normalized volume expanded with the down move and market closed in the bottom 25% of the range - showing strong bearish conviction.

However, the fact that the S&P has had 6 consecutive down days suggests a probability of some sort of rally today - a retest of 852.75 (the breakout low), basis March, is on the cards. Moreover, the Market Delta chart (Figure 2) shows points of inflection at 851 and 853. So we could say that resistance for today runs from 853 to 850.

How far can the rally go without throwing the current down leg into doubt?

In the 5-day (weekly trend) time frame, a running correction formed the 18-day correction. In Figure 1, the red line is the 18-day swing and the blue line, the 5-day swing. The 38% retracement nailed the top of the move. If the running correction idea is correct, then we ought to see a close above 868.20 (basis cash; 864.30, basis March).

Support, basis March, comes in at 815 to 818.

My minimum target for this move is the 788 to 792 area, basis cash.

Stuart asked how I would classify yesterday’s profile.

It certainly was not either of the two traditional trend day patterns although the range and close did satisfy my requirements for a trend day. I’d classify it a bear pattern with the Initial Price Movement (IPM) commencing in the prior day’s M period. See Figure 3.

Figure 1 18-day and 5-day Barros Swing

Figure 2 Market Delta

Figure 3 Market Profile

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