The S&P 500 ($INX) looks to have possibly posted the peak of Wave B (second wave) of its major (long-term) 3-wave downtrend. The index hit a high of 4,325.28 during August before closing the month at 3,954.53, down 175.29 for the month. Last month in this space I talked about how the S&P could close higher in August and September, setting the stage for Wave C (third wave) to begin during October. That time schedule looks to have been sped up, with all eyes now on the Wave A low of 3,636.87. A move below that level does two things: First, it technically completes the 3-wave downtrend and Second, it opens the door to the next downside target at the 33% retirement level near 3,228.00 (second dashed blue line). That’s a long way down. Monthly stochastics are still above the oversold level of 20% indicating there is more room to the downside over the coming months.
The Dow Jones Industrial Average ($DOWI) is showing a similar pattern as the S&P 500 with the August high of 34,281.36 looking like the peak of Wave B of the major 3-wave downtrend. If the Dow has moved into Wave C, as indicated by the bearish reversal posted during August, it would be expected to move below the Wave A low of 29,653.29 from this past June. Here we see initial support at the 20% retracement level near 29,560.00 (first dashed blue line) with extended support at the 33% mark near 24,760. As with the S&P 500, the Dow’s monthly stochastics continue to hold above the oversold level of 20%.
The Nasdaq ($NASX) is still showing signs of a major 5-wave uptrend, though it will be imperative for the index to stay above its previous low of 10.565.14 from this past June. If it can do that, this selloff looks to be Wave 2 of the 5-wave pattern. If not, then the Nasdaq could be poised to fall to its 50% retracement level near 8,115.00 (third dashed blue line). I don’t think the Nasdaq is that bearish, so am expecting it to hold the June low. I’m not in any hurry to be buying, instead waiting to see if monthly stochastics move back below the oversold mark of 20% and establish a bullish crossover.
The US 10-year T-note (ZN) posted a bearish outside month during August, reaching a high of 122-020 before falling to a low of 116-120 and closing at 116-28. This was down 4-085 from the July settlement of 121-045. It could still be argued the 10-year is in a 5-wave uptrend, with August activity establishing the peak of Wave 2 and much of Wave 3. If this is true it is important for the Dec contract to hold the previous low of 114-270 from June. Given monthly stochastics are below the oversold level of 20%, this looks to be a strong possibility. Buyers could be waiting near that low with sell stops sitting below, just in case.