Written by William Kurtz
The Dow Industrials had dropped below its "key Low" (the January 6 bottom of the upside-corrective three-wave A-B-C sequence) on January 9 and 10, and did so again today. The S & P 500 "got with the program" by closing below its January 6 Low today, as did most of the other stock indexes, including the S & P 100 and the S & P 600 SmallCaps. I think this enhances (but does not irrefutably prove) the bearish argument.
The Dow Industrials closed Down 179 points; the S & P 500 closed Down 23.17 points; the NASDAQ Composite closed Down 61 points; and the NASDAQ 100 closed Down 62 points. The Dow Transports appears to be lagging the others by a few days. It posted its new High this morning (thereby completing the fifth wave in a five-wave sequence), and promptly turned Down. Its own major trend may have switched today. The Dow Transports should begin to "play catch-up" soon. It may have started today.
The S & P 500 touched its 78.6% retracement (of the decline from the all-time High on December 31), did not care for the altitude, and promptly reversed, taking along with it everything that was gai.ned last week. You can see that "touch" and that "grand recapture" quite clearly on the attached 60-minute chart of the S & P 500.
The Dow Industrials, the S & P 500-100-400- and 600 all are slightly oversold after today's declines. The final price bar in the 60-and 30-minute charts of the S & P 500 were "Doji Hammers," which are bullish. ("Doji" means that the Open and the Close were the same, or very nearly so). I think that we can expect to see a bounce in the main indexes, soon if not tomorrow. This ought to be a countertrend correction which should not result in Highs above today's intraday Highs. Assuming that the S & P 500 does not go lower first, a 50% retracement would take it back to a mini-peak of 1830; a 61.8% retracement would take it to 1833. If the bearish argument prevails, the S & P 500 should turn Down from that mini-peak, and then drive toward a new Low. The other Indexes should roughly follow suit (except the Transports, which is "running late.")
If the Indexes were to continue lower now instead of starting a bounce now, the S & P 500 probably would find a tradable Low at about 1800; in the Dow Industrials, it would be at about 16100, or slightly lower.
We will need to see further declines before definitively "calling a top;" but the evidence for it grew substantially today. All of the Indexes are now heading in the same direction - that is, they are confirming each other. What had been a "fractured" market has now coalesced into a common pattern.
Today's strong downside bias in the Indexes would be negated if the Indexes (the Transports excluded) were to surpass today's Highs. Unless and until that were to happen, we're bearish.