After the abrupt and significant correction from 2872 took place, I questioned whether it could end before the 40-wk cycle had made its low in May. That does not mean that we could not have a retest of the high before dropping back into the cycle low.  The market has been very volatile since the correction started, and it does not take long to create congestion patterns on the Point & Figure chart. These can give us a clue about how far the next move will carry. The short-term move to 2789 fell a little short of its 2800 (ca.) target, and the retracement to 2647 on Friday filled a near-term projection to this level, thereby creating a short-term low.  

When the rally from the 2533 low overcame the previous short-term high of 2727, it suggested that the SPX recovery could reach as high as the previous top of 2872, or even a little higher, before reversing. Last week’s pullback has not altered that possibility, and next week’s activity could confirm or nullify it.  So let’s see what it brings. There has not yet been enough congestion created at the 2647 level to overcome the 2789 top, so it is likely that additional short-term consolidation will be needed before it can be tackled. A move to retest the highs before falling back into the 40-wk cycle low would be the most optimistic scenario.  Additional weakness next week would favor the most pessimistic one, which is to first re-test the low, or even to go slightly lower.

Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart

The daily chart shows the value of the 9-MA Bollinger band which creates a tighter envelope around the price pattern. The low of the correction found support on the combined 9MA-BB, the 200-DMA and the trend line from the 1810 low. Good enough to justify a strong rebound which took the index past the 2737 top all the way to 2789 in a 5-wave structure before correcting back down to 2647 on Friday. If we have started another rally in a 5-wave structure which takes us back to the former high of 2872 or even the 2900 level (which had been projected before a correction took place), and then reverse back down into the 40-wk cycle low, the intermediate correction may turn out to have been some type of flat. It’s something to watch for, but it’s much too soon to make that assumption.