It is a positive sign that on a bearish day, the market has been unable to break any prior lows. It is also a positive sign that the structure from yesterday and today looks good as a “1-2.” That can change quickly, but it hasn’t yet.
The target for the red 3 is the little orange box above us around 4245 or so. I find it notable that that coincides with a trend line (which I’ve drawn on the chart below). A (red) 3-4 should involve some sideways consolidation (nothing as big as what we’re going through now) and a trend line is a great place at which to do so.
After that consolidation, I would expect one more rally for the red 5 (of orange 1). That should get us well into the 50-61.8% retracement of the entire second decline of the major correction we’ve been in all year (the bigger orange box).
That is also the spot where bears are going to sell the rally, I believe. That should produce a pullback, which I would label as orange 2, and it can retrace to the 4 of a lesser degree (red) which also coincides with a fib (23.6% noted on the chart) and a retest of that green trend line. After that, I would expect another rally to the upper rail of the bull flag.
No telling if it’s going to work out just this way, but this seems sensible to me at this time.