S&P500 ~ market takes a short term rest before continuing the five wave decline...

The last time we posted a short term chart the market had just finished the first wave down...."minute" wave [i]. Since then price had a three wave retracement for wave [ii] and then fell apart in wave [iii] down

Wave [iii] set multiple historic records that would be expected but, we have to remember that this is just the first small degree waves from the all-time-highs that will eventually be part of the sub-waves of much larger degree waves down as the "Bear Market" evolves over time.

The 60 minute Dow chart shows that yesterday's low has all of the sub-waves for a complete five waves for wave [iii]. Since this morning's action saw a new low in the Dow but not in the S&P we have labeled it as an (a) and (b) to start the wave [iv] corrective rally with wave (c) currently underway now.

Wave [iv] could see price retrace back to the previous smaller degree wave (iv) of [iii] which is the most common target area. Also the Fibonacci scale on the chart shows the key Fib retracement targets.

Also on the chart notice the momentum oscillator at the bottom. The momentum indicators are great at confirming the wave formation. What we want to see is that momentum during wave three of a five wave pattern moves lower than the first wave. Yesterday the momentum did fall lower along with price which confirms the move lower...known as a positive convergence.

Another point we watch within the wave formation is that we like to see the strongest momentum take place within the wave three of three of the five wave pattern. In this instance notice on the chart that the momentum did move to it's lowest reading last Thursday at the low of wave (iii) of [iii]. This is a very powerful tool to help confirm our wave labels!

The momentum of wave five of three should fail to go as low as wave three...known as a positive divergence in a down market. This is what happened yesterday and today. Notice price went lower but momentum didn't.

Yesterday price had the largest one day decline in history of over 3,000 pts just before the close. This is just the beginning and one can only imagine the magnitude of the records that will be made during a "primary" degree wave 3 down.

The invalidation of this wave count would only happen IF price managed to rally above the wave [i] low....shown on the chart. For the Bulls....this would indicate that the decline only formed three waves and was corrective off the all-time-high. At this time the percentage chance we give this is very low!

For the bears....as long as price doesn't move above the invalidation line and we see another push lower...this will be wave [v]. This five wave pattern down from the high will be just the next larger degree "minor" wave 1. From this low we'll see a very strong rally....however, this will only be "minor" 2 that will be followed by a much larger move down as "minor" 3.

IF over the next few days or so we do see lower prices and the completion of the first five waves down.... along with everything else we've pointed out that confirms the major market top seen in mid February....this will be the most important for us because the five down will signal the long term trend has changed from UP to DOWN with targets back to the 2009 lows.

The virus was a "black swan" event that came out of know where right as the market reached and concluded the largest degree wave pattern in history. It's always exciting to see what fundamental event will happen to coincide with a technical market top or bottom....an out of control virus was not what we wanted to see. We can only pray that in the months and possibly several years of the bear market....that it will be because of the lingering recession caused by the virus and not because of the virus itself.

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