Where Is This Correction Headed?

I realize that there are a number of analysts that disagree with the above wave count that shows the advance from the March 9 low as 5 waves, but until proven otherwise I believe that it is the best fit. The question is: how deep will the wave [B] correction be? There are several levels of support for the correction. The first cluster of support is in the 40 to 41 zone. We have the 50% RT of the bear market decline at 40.06, the 200dsma at 39.84, the 200dema at 40.94, the August high at 41.08, and 23.6% RT of the rally at 41.68. There is also support at the lower channel line. The second cluster of support is in the 36 to 38 zone. We have the 38.2% RT of the bear market decline at 36.52, the June high at 37.23, and the 38.6% RT of the rally at 38.61. There is also major support at the downtrendline of the bear market decline (not shown) which was broken to the upside in September 2009. This support is currently around 37.50 and is the most likely terminus for this correction. I discussed this breakout in my post The Breakout No One Is Talking About.

The likely path of an (A)(B)(C) correction is down to 41, up to 44.75, and then down to 37. A test of the broken red trendline is expected next week and into February 1-2 time frame. This may be a good place to get short for a move to the first level of support. Currently the trendline is around 45.00.

As frustrating as December and January have been, the one good thing that came out of it is the upside breakout from the wave (4) triangle which led to wave (5). 5 waves up means that there will be another 5 waves up once this correction is over, and this fits nicely into the view that we are in an x wave that will top in the summer or fall of this year as I discussed in my Year Ahead posts during the first week of January.