The odds of a recession have increased. And the average stock market decline during a recession is around 40%. So with much greater risk to the downside, investors are fleeing stocks in a hurry. I sense we will make it down to around 1151 for the S&P 500 on this leg of the journey. What is so special about that level, you ask? Because nearly every time the stock market has declined greater than 16%, it signals a recession and further stock declines. 1151 is the 16% mark from the recent highs. Put a note on your computer to watch what happens as we approach that mark.
It's an interesting view. But do average historical precedents mean much in today's specific situation? I see nothing special about either 1150 or 16%. Looking at the intraday highs and lows since the 7/21 top at 1347.00, which I am taking as the beginning of a wave 3 down, suggests that the drop from the 8/01 high of 1307.83 is a 3rd wave of a 3rd wave. The first wave was a decline of 64.14. This 3 of 3 is at 117 and counting. I can't see this 3 of 3 bottoming anywhere above 1170.
Here's a best case scenario. At 1170, the 3 of 3 drop is 138 points. A .38 retracement would put a subwave 4 top at 1223. Then, if sub wave 5 = subwave 1, the end of wave 3 is at 1158. That's pretty close to Reitmeister's 1150, oddly enough.
There is a potential support band in the range of 1000 to 1050, and that is where I expect this wave 3 down to end. But this is nowhere near a real finish.
Some roller coaster rides are all fear, no thrill.
Update (1:30 p.m): Subwave 3 of 3 bottomed a little before noon at 1168.35. Around 1220-30 looks good for a subwave 4 top, and we should get there before day's end.
Update 2 (after closing): The post-opening intraday high was 1213.59, within a tic of a .33 retracement. This ended wave 4, and wave five down has begun. Subwave 1 bottomed at 1191.57. Sw 2 is in progress at today's close of 1199.38, very close to a 50% retracement of sw 1. If it hasn't ended already, it should early Monday, followed by a sw 3 down. We shouldn't expect 3 of 5 to be as dramatic as 3 of 3. But with two down subwaves ahead of us, the bottom is still quite a ways down. If wave 5 = wave 1, that will take us close to 1100. I still expect a bottom in the 1000 to 1050 range.
Here is a Yahoo chart of today's action, with wave labels added.
Again, this is just the beginning. Look out below!