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As noted last week, 2020 is an important level of support for the S&P 500. It must be held to keep the bullish counts alive. 

Sunday night, as most of the market seemed to be looking for a crash, the Trading Room at was setting targets for an expected rally Monday. The market hit those targets.

But, the question now is if the market can maintain this uptrend or not. If the market declines steeply Tuesday, and provides an impulsive pattern to below 2020, and into the 1990 region, that would provide a strong warning of a much bigger decline to come in December. Even in that case, there will likely be a wave ii retrace leading into Thanksgiving and back up towards the 2100 region.

At this point, it's premature to aggressively trade the short side of the market.  It would be better to see some confirmation of a solid 5 waves down, or a strong break of 1990, before entertaining targets well below 1900.

Tuesday and Wednesday will be important in determining if the 5 waves down will complete or not or if the S&P index will pull back in a minor 4th wave and be followed by a 5th wave higher to complete 5 waves off the 2020 low.  Such a 5 wave structure would be a more bullish indication. But, remember, any break down now below 2020 is a bearish indication.

See chart illustrating the wave counts on the S&P 500.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.