Is The Correction Complete?

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Cycles:  Looking ahead. 

7-yr cycle – Last lows: 2009-2016.  Next low: ~2023

Market Analysis (Charts, courtesy of QCharts) 

IWM - SPX (weekly)

Last week’s market action has done nothing to eliminate the relative weakness displayed by IWM. This is probably because IWM likely completed its intermediate wave 3 from the March 2020 low ahead of SPX and is waiting for the latter to put an end to its comparable structure before they can correct into wave 4 together.  

SPX daily chart

Last week’s letter was entitled “Extending Phase 2?”.  That was quickly resolved last Monday when SPX started on wave 4 of the move from 3723, but this week, we have another dilemma. Are we done, with wave 4 correction finding support slightly above its 50-dma at 4055, or is there a little more to it? That will depend on how much of a pullback from Friday’s close at 4180 can be mustered by a final drop into a short-term cycle low due in the Monday-Wednesday window.   

The P&F distribution which took place at the wave 3 top gave us two possible targets for the low of wave 4: either ~4055-4065, or ~3990. With SPX finding support on its 50-dma at 4056.87 and then rallying to 4180 by Friday’s close, it would seem that wave 4 is already complete. In which case, the rally to 4180 is already the start of the next short-term uptrend as wave 5 of the rally which started from 3723, and which has a determined objective of ~4330-4390 already established by the next-to-last phase of accumulation established at the March 2020 low.

After the completion of wave 3, we were also looking for a 50% pull-back of wave 2, which would have taken the index down to about 4045. Again, Wednesday’s low, although it did not exactly meet that requirement, was well within the ballpark to satisfy it. But to be more certain that wave 4 is finished, we should wait until the short-term cycle has made its low early next week and see if Wednesday’s low holds.  

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The above comments, as well as those made in the daily updates and the Market Summary about the financial markets, are based purely on what I consider to be sound technical analysis principles. ...

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