The major indexes look to be breaking down from a continuation pattern, and we think it is possible that the fifth and possibly final wave of the bear market is upon us. We believe this could send the S&P 500 down another 7% to 12% to the 1170 to 1237 range over the next three to four weeks.
The price structure of many indexes appears to be taking the shape of a 5-wave decline and that is very typical bear market action. Within the 5-waves, there are three waves down and two counter trend or corrective waves up. Wave 2 cannot retrace all of wave 1 while wave 4 cannot move above the bottom of wave 1, otherwise the wave counts are invalid. Many times, the fourth wave is a triangle formation, which we have been talking about over the last couple of weeks.