If anyone had any doubts that 1378.04 marked an important top, today’s market action should have dispelled those beliefs. The market gapped down at the open and never looked back. Mustering only a few feeble attempts at moving higher, the markets worked lower throughout the day.
Yesterday we said we expected the market to still work its way lower, and we were right. However we do believe we misread the wave counts. We thought we were in a nested wave sequence, and Monday’s moved seemed to back that up. Considering the action today, we now believe the move from the highs have been a more classic five wave sequence. This was confirmed when the market dropped to its low of 1340.03. This met our threshold for a five wave sequence as shown in the chart below.
Since we have completed a five wave sequence, a correction would be expected, moving the market higher. We would remain extremely cautious at this time, despite the call of a correction. This would be wave 2, which is the most likely to invert. An inversion would see the market move slightly higher, and then make more sharp moves to the downside. This should be considered a pause in the downturn. A move below today’s low would be considered a continuation of the move.
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