The red channel obviously broke down yesterday, so SPX will have to reestablish a new basis for any further upside.

The next potential support is the purple channel line at about 1684 — marked with a red B.  This is nearly a .786 retrace, so could be all the downside this correction has in store. But, it looks to me more like an A wave than the whole shebang.

If it fails, potentially more substantial support waits at the red .886 (1679.86) — also the intersection of two channel lines — probably late in the session or early Thursday morning.

The red .886 may not hold.  The 1687 former high has already fallen, which is a sign of much greater weakness than we’ve seen of late.  If so, we’re very likely to see an extension of the red pattern to the 1.618 (1655) at the bottom of the grey channel.

As we discussed on Jul 30, 1654 is key:

If the 1654 level doesn’t hold, the bottom of the purple channel (and 2007 high) is still waiting down there at 1576.  Even the bulls could cheer such a development, as it would constitute a marvelously bullish back test and a nice AB = CD flat on the way to SPX 1823.

the chart from Jul 30

I’ve been a fan of this scenario for several weeks, as it fits nicely with the larger channels as well as the currencies.  The dollar, for instance, is closing in on the target (the red circle) we set on Jul 26 [see: Hard to Get.]  I believe a break of 1654 would likely resuscitate DX and restore it to its more traditional role of safe haven.

The USDJPY is also closing in on our Jul 26 target.  The white channel is officially broken, and the yellow midline — which also serves as the neckline for a large H&S pattern targeting the white 1.618 at 85.66 — is the next line of defense.

I’ll be back from vacation tomorrow and will write more then.

GLTA.