Little has changed from the trading on Tuesday. The S&P 500 once again failed to reach 1530 and fell back below the critical 1525.70 level. This leaves the five-wave formation up from May 10 intact, and the possibility of a top remains a valid consideration. There is not much else that I can add to this point at this time.
Instead, I would like to point to a development on the longer-term chart. The concept of trend channelling tells us that price patterns tend to travel within a parallel channel. When the prices move beyond the boundaries of that channel, it has important implications. In fact it was a similar situation that prompted me to predict a severe downward move on September 9, 2001.
When prices break above of the upper limits of a trend channel, we call this a "throw-over". It is important to note the magnitude of move above the channel, because it is commonly followed by a similar price movement below the trend channel. We call that this reaction a "throw-under". The fact that we have seen just such a breakout on the S&P 500 is what fuels my anticipation of a significant downtrend to correct this "throw-over". It is the tendency to see a reactive "throw-under" that should eventually take this index back below the March low.
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