Thursday's bounce exceeded the estimated upside target range by a few points, but that was to be expected, considering this week's seasonality and the extent of Wednesday's sell-off. As I discussed in Thursday's Morning Report, I still expect at least one more down leg to begin as early as Friday morning. However, it remains to be seen whether Wednesday's decline is merely wave A of a casual ABC corrective pattern or wave 1 of a much more serious affair.

Chart 1 below depicts my interpretation of Thursday's action in the S&P cash index. As shown, red wave B unfolded as an Elliott barrier triangle (aka. ascending triangle). Triangles usually occur in the position prior to the last wave in the direction of a trend (i.e., today's counter-reactive rally is the trend, and red wave C is the last wave). Therefore, we must assume that red wave C has either ended or is within striking distance of its target. On the other hand, a rise above the 78.6% retracement level relative to Tuesday's high and Wednesday's low will undermine the bearish case, and a subsequent break above 1269.37 will utterly invalidate it. With that said, I remain pretty confident about the prospect of immediate downside.

Chart 1. A countertrend ABC rally in the S&P cash index.

Unless the overnight action unfolds in a manner that is inconsistent with this forecast, I'm not planning on publishing a morning report on Friday.

Trade Well and Happy New Year!!!

Peter