By Mike Paulenoff, MPTrader.com
After yesterday's big upside pivot and reversal, it wasn't surprising to see upside follow-through this morning during the first hour of trading. The question is what happens next, and that is the critical issue.
My work tells me that the move that started in the middle of September at highs above 1400 in the E-Mini Nasdaq and around 1040 in the E-Mini S&P, those peaks and the declines that ended earlier this week at around 988 in the S&P and around 1300 in the Nasdaq represent the first leg of a correction to the downside that has considerably further to go.
So the question is now that we've had a bit of a recovery off those lows from yesterday, is the recovery complete or is it just partially complete? Keep in mind that the overriding concern is that the dominant trend right now is down from the middle of September. My work tells me this is a corrective rally, and that it is partially complete at today's first-hour lows.
We should have a pullback, and it could be a relatively severe pullback that retraces, say, two-thirds or three-quarters of the rally that transpired over the last 48 hours. At which point, though, I think we'll have another attempted rally, which will be the final move up in this relatively minor correction before the dominant trend down reasserts itself.