Written by: Avi Gilburt As the media highlights the potential impeachment process in the coming weeks, many are so concerned that this will be the “cause” of the market drop we are expecting. Yet, history suggests otherwise. The narrative will certainly play out as follows: The market likes certainty and stability within our government. (Please ignore that this was the same reason many claimed that the market was going to crash if Trump was elected – yet we were pounding the table in expectations of a large rally). However, an impeachment proceeding places us into a very uncertain and unstable situation within our government. Therefore, the market will react negatively to that uncertainty. It sounds reasonable, right? It makes sense, right? It sounds logical, right? There's only one problem with such “reason,” “sense” and “logic.” Have we forgotten that the market rallied 10% during the Clinton impeachment debacle? Yes, I'm still expecting the market to take us lower before the bull market begins its next rally phase to our long term target of 3800-4100SPX. And, any impeachment discussion will simply be an excuse for what the market is setting up to do. But, make no mistake about it. It will simply be an excuse as history proves that impeachments “cause” 10% rallies in the market (smile). So, before you use any geopolitical news to support your market thesis, consider what Ben Franklin once noted about human “reasoning”: “So convenient a thing is it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do.” But, clearly, I have digressed. Let’s move back to our analysis of the market. As I do from time to time, I publicly post an analysis report I provide to our members. And it has been some time since I have published my analysis, so I have decided to do so this week as well. What A Wild Week And, despite it being a wild week, I don’t think we are done with this wild action. As the b-wave we have been tracking these last few weeks seems to have topped, the market began a decline phase this past week, which should minimally take us back down to the 2820 SPX region. While the market invalidated a count on Friday which would have pointed us down to the 2770-2820 region in a more direct fashion, I still don’t have strong indications that the market has begun more than a corrective rally off this past week’s lows. So, before I present my expectations, let me take you through my thought process. Once we see an initial decline off a high, such as the one we experienced from the all-time market high struck at the end of July (an a-wave), which is then followed by a corrective rally back up (a b-wave), our primary expectation is for a c-wave decline to provide us with a proportional move relative to the a-wave and b-wave. With the market rallying in a 3-wave corrective structure into the September high of 3022 SPX, we have confirmed that the rally off the August lows was corrective in nature, as per our primary expectations. (And, believe me, maintaining the expectation that it was a b-wave rally was not easy due to all the bullishness in our trading room and throughout the market, with many looking for targets north of 3100.) But, once that b-wave completed, it should then lead us to expect a proportional decline in a c-wave. In the cash index, that proportional decline would target the 2820 region, whereas it would be 2771 based upon the futures. However, at the end of the week, the market came up quite short of the ideal proportional targets one would normally see for a c-wave decline. When we see that occur, it leads me to primarily consider two conclusions: Either the c-wave is tracing out as an ending diagonal, which is the green count presented on the five-minute SPX chart, or the market is tracing out an even more bearish i-ii, (I)(II) downside structure, as presented in yellow. At this point in time, I'm not certain which is the more likely count, but have maintained the ending diagonal as my primary expectation for now. We will be able to make a more definitive decision based upon the manner and structure of the next decline. Moreover, if you look at the daily chart of the SPX, the MACD is simply in no man’s land. It does not suggest to me that it has found a bottom at this time, as it has not reached its support target noted on the chart. It has not even reached the up-trending line created since the market bottom in June nor has it turned positive yet, as it's still in a very bearish posture. Therefore, it does not suggest to me that a bottom has yet been struck on the larger degree perspective. So, for now, I think I have to maintain an expectation of lower levels to come over the coming weeks. Now that you understand my thought process, allow me to explain what will invalidate those potentials. First, any move through the 2992 SPX region will invalidate both of these structures. Should these structures invalidate with such a move, it opens the door for the potential that the b-wave has not yet fully completed. It may suggest that the top we recently struck at 3022 was the [a] wave of the b-wave, with the bottom we struck this past week being the [b] wave of the b-wave, with a maximum [a]=[c] target at 3100. But I do not see that as the higher probability potential due to the primarily corrective nature of the rally off this week’s low, with no projections for the rally off the low pointing that high at this time. For these reasons, I view this as the lower probability potential for as long as we remain below 2992. Second, should the market break down below 2820 SPX, then it will make the probabilities of the ending diagonal pattern drop considerably. And if the decline breaks the 2820 region in a clearly impulsive structure, and we are able to follow through below 2770, then I will move to adopt the more bearish count, which will point us as deep as the 2600 region for a target over the next few weeks. So, let’s take a step back now and review what messages the market has been providing to us over the last several months. When the market was rallying to the 3028 high this past summer, and many were looking for a much larger bullish move to take hold, we were standing against the predominant tide suggesting that the underlying stocks within the market did not suggest any major break out was imminent. And, when the market was rallying again in September, and the same bullish expectation was held by many that a larger bullish move was about to take hold, we held our ground for the same reason. Both times, the market reacted as we generally expected and those who retained an uber-bullish bias were left relatively disappointed. Remember, the market index is composed of stocks, and unless the major underlying stocks in the market present as a clear 3rd wave break out set up, it's unlikely that the index as a whole is going to begin its run to the 3800-4100 SPX region target we have for a 5th wave. So, today, I'm going to remind you of our view that the major underlying stocks still do not look primed for a major break out to take us to the 3800-4100 SPX region target. Therefore, I still think much lower levels will be seen before the market is ripe for that rally we still expect to the 3800-4100 region. I want to also note that, even though I still retain an expectation for this bull market off the 2009 lows to take us to 3800-4100, we do not have an easy task in suggesting that lower levels will be seen within a market that's clearly bullish in its long-term perspective and nature. Maintaining a shorter-term bearish bias also is extremely uncomfortable for me since my larger perspective is still quite bullish. But, as I have noted before, I must maintain a perspective based upon an intellectually honest review of the market, and as long as we continue to count up to five in the standard fashion, I have to expect a 4 to come after a 3, especially within the great majority of the underlying stocks within the market. That suggests that lower levels are still likely to be seen. I know there are many market participants who have become frustrated with this whipsaw back and forth action in the market with which we have been dealing for some time. But I think you need to take a step back and recognize that this is all within larger degree corrective market action. And, as Ralph Nelson Elliott outlined many years ago, corrective action is quite variable. That's why we experience as much whipsaw as we have. In fact, the whipsaw supports our perspective that this market is still likely in the throes of corrective action. That also is why you will sometimes even see analysts disagree about the smaller degree expectations. It's simply the nature of the market within which we now find ourselves. But the one thing that we have not yet seen is a full 5-wave structure completed to the upside over the last two months. Anyone maintaining expectations of continuation rallies, especially near market highs, has been left quite disappointed, as the market has turned down hard each time. Impulsive structures have not been fulfilled for the last two months, and, therefore, I do not see a reasonably probable structure that has set up to begin our rally to 3800-4100 just yet. Along the same lines, we have not seen a completed downside structure for quite some time either. So, this again leads me to the conclusion that we are in a corrective structure, which should explain why the market has whipsawed so much. That's simply the nature of the market during corrective structures. So, rather then attempt to trade this environment aggressively and become frustrated, I have stressed in many prior updates that you must understand you have a great advantage in knowing that you are in a corrective environment, as it should lead you to adjusting your trading and positioning accordingly. In summary, the coming weeks will likely present you with much more whipsaw and with much more emotional challenges. As I even noted to Zac Mannes (who runs our StockWaves service at Elliottwavetrader) in synagogue on Friday night, I'm starting to hate this market, as it has certainly been a very difficult and whipsaw environment. Yet, nothing has changed my expectations that much lower levels will likely be seen. The nature of corrective structures is somewhat unpredictable in the smaller degree moves, yet they maintain rather consistent within the larger framework of the market as a whole. Therefore, my continued suggestion to you is very simple at this time: Consider lowering your risk through your position sizing and how aggressive you trade this market. Please also keep in mind that even though the market is still bullish in its longer-term composition, nothing has changed in our expectations that much lower levels will likely still be seen for all the reasons cited above. The only thing that will change that perspective is if the market provides us with a  structure break out through the “bullish over this region” noted on our charts. But I do not see that potential at this time. And, lastly, remember that when you see whipsaw of this fashion without 5-wave structures to the upside being completed, it actually supports our general expectations of much lower levels yet to come. But the path to those lower levels is not always easily foreseeable within those variable corrective structures. Related: Impeachment? Maybe. Recession? Yes.