Thoughts for Monday, March 19...

The markets began a correction during the week of February 21. This downward movement retraced a portion of the rally that began in July of 2006 and continued into the new year. On March 5, the market began a period sideways that appears to be near completion.



The chart above shows that this sideways movement has assumed a fairly standard three-wave corrective formation. The fact that this corrective formation retraced roughly 38% of the downdraft from around February 21 until March 5 adds to our ability to characterize this as a flat wave structure. We will probably see additional upward movement as this pattern completes. It seems unlikely that the S&P 500 will move much higher than resistance at 1407.43, though the next area of resistance would be at 1417.23.

Once this sideways corrective formation completes itself, the S&P 500 will experience another thrust down. This movement will probably complete during the week of March 26. That would give us a significant low at week 76 of the time cycle that began back in October of 2005. As discussed previously, the support for this downward movement will be around 1370 and 1340.

I would like to reiterate that I do not believe this is the beginning of a new bear market. I believe that this is a corrective period of rather high degree, and will probably continue into June. It seems probable that all movement between now and June will be confined between 1340 and 1460. Once the S&P 500 reaches its low next week, we will probably see some more significant upward movement. At some point, I would then expect to see at least one more wave downward to test significant support levels before this structure completes in June.