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Technical Analysis: The S&P 500 Enters Major Correction Period

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The market is close to confirming new correction.

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The S&P 500 (INDEXSP:.INX) has been on a tear since late 2012, bottoming at 1266. The rally, however, my firm has been charting out as part of a "Primary wave 3″ uptrend for this bull market cycle from March 2009, and we are likely entering a major correction, or what we would label "Major wave 4." Since the 1266 lows, we have had Major Wave 1, 2, and now 3 completed at 1710. We are entering Major wave 4 which should correct 23-38% of the entirety of Major wave 3, which was 444 points.

This correction will be confirmed with any close below 1674 and nails in the coffin begin with any close below 1685 on the S&P 500 index. Primary wave 1 of this super bull cycle ended at 1370, a 704-point rally. Primary wave 3 will likely be larger than Primary wave 1, and I am projecting a top between 1900-2000 on the S&P 500 before it's completed. The current correction is Major wave 4 of Primary wave 3, which has 5 Major waves required. With that said, our projections are for 1605 on the shallow side and 1540 on the deeper side for Major wave 4 of Primary wave 3.

Now it is possible that we may extend a bit higher yet in Major wave 3 to 1736-1772, but only if we hold the 1685 support lines, which the market is basing around currently. In any event, my firm has been aggressively taking profits in the past two weeks on multiple positions while still holding a few open at this time.

Below is a chart showing our projected correction pivots of 1605 and 1540.



Twitter: @activetrading

Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.

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No positions in stocks mentioned.

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