Today’s market continued the corrective wave from the 1378.04 top. After an initial move lower from that top last week, the market spent the remainder of the week consolidating into a nested wave structure. Today’s action was the result of the unraveling of that nested wave structure.
The market moved lower right from the opening bell, finding some support around the 1365 level. After a quick move to the 1368 level, the market moved lower once again to 1360.71. These moves constituted Waves 3, 4, and 5 of Wave 2. From there, the market made a small move to 1363.40 (Wave 3), and then down again, finding support at 1359.13 (Wave 4). The ensuing move to 1362.07 completed Wave 5 of Wave 2. The market then bounced around while it quickly traced out Waves 3, 4, and 5 of Wave 2.
After completing Wave 2, the market staged a rally into the close. After hitting 1362.36 (Wave 3), the market lost ground to 1360.42 (Wave 4), before resuming the rally. This rally topped out at 1365.96, completing Wave 5 of Wave 2. After this point, the market drifted lower into the close.
Nested waves can be quite complex, but watching them unfold can be fascinating. The many gyrations of today were driven by the unraveling of this complex nested wave sequence. This sequence has only Waves 3, 4, and 5 to complete. With this in mind we expect the market to move lower once again. Once the market completes Wave 5, a correction from the 1378.04 top would be expected.
Without knowing points 3, and 4, we cannot make a projection for the Wave 5 endpoint. We will have to watch the market action to determine that.
From a longer term perspective, this is but the beginning of this corrective sequence. This is a correction for the major move from the March 2009 lows of 666.79 to the recent high of 1378.04 on the SPX. We could in store for a move down to levels we haven’t seen in quite awhile.
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