Our Insurance Policy: A More Extensive Flat Correction
Our previous update showed that “the black W-4 [can] morph into a flat correction. A flat correction often has a=b=c; thus, the red W-c can drop back to the $5100 level.” We still cannot exclude this possibility since the index has reached the typical target zone for the B-wave of an (irregular) flat: b=a to b=1.236x a. Hence, a protracted 5-3-5, a-b-c pattern can have been completed last week’s high.
However, it requires a break below the September 6 low, with a severe warning below $5490, to tell us that will be the case. From there, the black W-5 can start. However, this remains our alternative view, “insurance policy,” as the index is still trending higher.
In our last update, we concluded, “…unless we are entirely mistaken, one way or another, we don’t see the FED’s rate decision crash the market,” which was the correct foresight. Thanks to the EWP, we know that after W-4 comes W-5, so we still see the worst-case scenario as a correction back to ~$5100+/-200. In contrast, the anticipated drop to ideally $5525+/25 fell short at $5615. Still, the forecasted subsequent rally to potentially as high as $6000 should be underway, contingent on holding above the September 6 low at $5402.