Given the likelihood that, the S&P 500's line of support identified yesterday soon will give way, there's a chance its violation might precipitate something dramatic. Not a crash (although some will call it that), but a decline possibly exceeding August's loss.
Again, the lesson of 2008 is expect the unexpected when the outlook is negative. The market's upcoming leg lower could prove a case in point. Weakness upcoming might have the technical effect of further separating the current moment as one far weaker than the May-June 2010 period.
To wit: what if the $SPX momentum (MACD) divergence mentioned yesterday does not materialize as the S&P 500 takes out its line of support? What if selling precipitated by support's violation accelerates the S&P 500's momentum lower, with MACD confirming the market's increasing weakness?
Still, no matter if in store is a steeper throttling than was alluded to yesterday, capacity to buy time ultimately might not be impacted. Present, hallowed levels of years to come might be sustained in but a wider band over weeks ahead...
So, possibility remains that, the market's greatest risk of spectacular collapse might be delayed until late this year and/or early next. Over coming weeks wave (2) of C might form as indicated above.
Prospectively you see a downwardly biased head-and-shoulders top forming in conjunction with a "running correction," second wave (i.e. wave (2)) of five waves down targeting index levels last seen in the 1987-1994 period. This possibility certainly is not a long shot. At this point definitely worth considering.
Momentum (bottom panel) turning down again after recovering from deeply negative to now being relatively in balance (all fitting the market's sideways trade since August) is a trip down memory lane, back to mid-June 2010, and early-January 2009 before that. Indeed, this latter instance bears notice on account of deeply negative momentum late-2008, for in fact the depth to which the S&P 500's momentum sank in August 2011 rivals that of November 2008.
The market's current technical state very well supports this possibility that, once the S&P 500's line of support is broken a throttling down toward 900 could be in store.
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