With last night’s price action, we are left with a probable 3-wave structure on the 18-d. If the bear market is to be confirmed, we’ll see a successful retest of the breakout zone: from the end of the Primary Buy Zone at 1421 and the Maximum Extension at 1382 (all figures basis cash).

Figure 1 shows that there is a mass of resistance in the 1382 to 1386 zone:

• Maximum Extension: 1382
• The 38.2% of the 1576 high to the 1270 low: 1386
• The 50% of the Market Profile directional move (IPM) 1495 to the low 1270 low: 1384
• There is a MIDAS line coming into the 1380 area probably by end of trading Tuesday.

The volatility died down last night and I expect more of the same tonight. The pre-market is calling a gap up but I doubt if the market will finish heavily on the plus side. Given it’s a Friday and given the volatility of the past few days, I’d expect to see a flat to down close.

Next week Jan 30, we have the FOMC rate decision. The market may move Monday, then I’d expect it to be quiet till after the FED decision. If the FED cuts less than 0.5% will see a sell off? Who knows?Certainly I won’t be doing anything until after their decision.

From my perspective, I am looking for:

• Volatility to return to normal i.e. a True Range of around mean of 22 +/- 10. (Before the FED decision).
• The market hold at or below 1406 (this will keep the 13-w Whole Point Count alive - we need 7 consecutive weekly highs at or below 1416 to give us the Whole Point Count. If we hold below 1416 this week, it will be week 1.

Nine consecutive daily highs at or below 1406 will give us a Whole Point Count on the 18-d. Today will be the 7th day. The Whole Point count is my time filter to confirm the start of the bear trend. So if we can hold at or below 1406 till Tuesday, we’ll have a confirmed monthly change in trend from up to down.

The 12m sell trigger needs a close at or below 1337 to confirm the change in trend in the yearly trend from up to down).

• I would prefer to see the resistance area at 1382 to 1386 hold and
• Then the market generates a setup and entry pattern.

Q: What if the market just blows through to above 1421?
A: I do nothing. I’ll let the market settle down and I’ll participate only if I see high probability setups.

FIGURE 1 S&P Resistance Zones

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