China is again in the news as its Caixin manufacturing index hits its lowest reading in 6 years. Dutifully, world markets decline by around 2% on average. Clicking the graphic yields the live pre-market view…
Again using SPX/SPY as an example, the implied drop would bring SPY to approximately the level noted by the red candle I have drawn on the chart of SPY we used in yesterday morning’s update.
So what the hysterics from China serve to do is bring the market toward or to our projected ‘B’ pullback [edit: bounce]. The media will serve up the bearishness and people will get concerned about a resumption of the correction. But as it stands now, the A-B-C pullback is still in play.
From here we are either going to get the rise to resistance at around SPY 204 (SPX 2040) or a drop to test the recent low, which would also decide whether or not the bull market remains intact (whether or not SPX holds the October low at 1820.66).
A resumed ‘C’ leg up to resistance remains favored, but we will know shortly if the market agrees with that short-term plan. The main point of the update however, is that yesterday and today’s bearishness not only does nothing to hurt the A-B-C upward correction scenario, it actually potentially kicks it into gear.
