March 10th- SP 500 Likely to drop to 1265/1239
The evidence continues to mount that 1343 was in fact the top of a major 5 wave move up from the Jul 1st 2010 lows at 1010 on the SP 500. The 333 point rally was basically a 61% fibonacci relationship to the 555 point 13 month rally to April 2010 from the 666 lows.
With all of these relationships and the extended 5th wave to 1343, we are now in some type of corrective mode wave. This appears to be a larger wave 2, so now the question is where are the possible bottoms.
Once 1283 is violated to the downside, assuming it is… we want to look at two very likely bottoms in my opinion.
1. 1265 is my first choice for a very shallow wave 2 correction off the 1343 highs. This would fit in nicely with the recent drop of 49 points to 1294, the rally to 1332 (78% Fibonacci) and a 150% C wave, putting us right at 1265. Also, at 1265 this would be a neat 23.6% fibonacci LIGHT correction. Why would I expect a shallow correction? Because this is part and parcel of a 5 wave bullish move of MAJOR 3 up. 3rd waves tend to be extremely bullish with light pullbacks relative to the first major wave 1.
So in english, we are in a major 5 wave move up, and this is wave 2 more than likely and it will be relatively shallow relative to the rally to 1343 from 1010.
If shallow, 1265 is the most likely target because it would be a perfect A B C correction in Fibonacci movement off the 1343 highs. In addition, it would pivot at a .236% fibonacci price point of the entire 333 point rally.
2. The correction is a bit deeper, and bottoms around 1239. I would call this the worst case lows and it would be a 31% retracement of the 333 point rally. We have seen several 31% fibonacci retracements in this bull market since March 2009.
Below is a chart showing the wave counts. Now the work is to watch 1283 near term for a likely bounce, but then if violated to the downside we will focus on 1265 as my preferred pivot low and 1239 as the worst case low.
Click to Enlarge