Another Move Down?

As of Tuesday’s close, we said the market had completed a 5 wave sequence from the 1419 high at 1412, with a rebound expected. If that rebound failed to carry above 1419, and then broke through 1412, we could expect another sequence to the downside.

Wednesday the market opened slightly lower, actually moving wave 5 within our model threshold, falling to 1411.65. From there the market tried to stage a rebound, rising to 1413.65. The rebound was short lived, and the SPX quickly fell back below 1412. That was our signal that the market was headed lower, and head lower it did. By 11:00AM the market had fallen to 1406, and by noon had fallen below 1400, hitting 1398 before trying to move higher. The index made it back above 1400, to 1402, before dropping once again, hitting the low of the day by 2:30PM at 1397.20. At that point the buyers took over, pushing the SPX back to 1405.67. The index dipped slightly into the close, finishing at 1405.54.

With the initial low of the day at 1411.65, the market completed Wave 1. The small rebound from there became Wave 2, with the drop to 1406 forming Wave 3. The move up to 1408, followed by the another move down to 1398, formed Waves 4, and 5, completing a 5 wave sequence from 1419.

From 1398 the market rose to 1402 in a 5 wave sequence, and followed that up with a 5 wave sequence terminating at 1397. Moving back below a wave 5 low usually signals another move down, but once the market surpassed 1402, it became clear the market was in the process of forming a semi-inverted corrective wave. Our target for this wave would be 1404-1406.5, exactly where we closed today. Should the SPX rise above our upper bound of 1406.5, our analysis of an inverted corrective wave in progress would most likely be wrong, and we could expect the rebound from 1397 to continue. A drop below 1401 would confirm our analysis, and we can expect another move lower, with another 5 wave sequence needing to be completed.