I've sketched out what I believe is a likely path going forward. Stocks tend to mirror time and duration sequences when coming out of consolidation patterns. In other words, the path out of a consolidation will be the mirror image (approximately) of the path that led into the consolidation. So looking at the graph, you can see the sharp rebound off the October lows taking the index to its ultimate high in late December. Trough to peak, it took a little over two months. Now that the market has broken down, in my opinion, we can approximate the next move lower by using the same timeline. The market peaked in late December, so I would expect it to reach my calculated target of 1800-ish about 2.5 months later, or mid-March.
Next I wanted to point out what I'm seeing in the New York Stock Exchange Index (NYSE). This is a much bigger picture than the daily analysis I did above, but I think it supports my argument that we're starting to see the major indices roll over.
The NYSE has desperately been trying to stay inside the wedge but it's been getting more and more difficult these past few months. You'll notice that it broke below the wedge for the first time in over 5 years back in October, but soothing words from the Fed caused the market to spike, thus ensuring a monthly close safely back inside. November was pretty much a non-even but then December saw another spike down below the line. Not to fear though as we got more Fed blah blah blah which yanked the market right back into the wedge. So here we sit in January with only two trading days left in the month. The market had its little hissy fit with the FOMC announcement and now we're sitting 3.5% below the wedge. Unless we see an incredible push today and tomorrow, I think the pattern has finally resolved itself to the downside. I've circled the MACD which just posted a negative cross, a decidedly bearish indicator. The RSI isn't helping either as it appears to be rolling over as well.
Rising wedges don't really have a generally accepted price target calculation so I can't give you a measured move forecast. What I can say, however, is that since 2012, the NYSE has moved straight up, with hardly any moves down (same can be said for the S&P). This means that there aren't any areas of strong support until 8500-9000, a full 15-20% lower than current levels.
I want to leave you with one last chart that I pulled from a ZeroHedge article posted yesterday.
In "normal" times, you should see a fairly strong correlation between bond yields and equity markets. This is evident in the chart for all of 2012 and 2013. But in 2014, that correlation broke as yields plunged and equities continued their 45-degree ascent. Divergences happen all the time, but they eventually revert back to the mean and re-correlate. So my interpretation of this graph is that either 1) the S&P needs to drop 30% to catch down to yields or 2) yields need to almost double to catch back up to equities. Given what we're seeing in the S&P, my money is on the former.