The market trade in a narrow range today, after topping out at 1374.76 on Friday. Today’s action confirmed that mark as at least a near term high. Today continued the counter trend move from that high.
The movements over the last two trading sessions has been complex if not volatile, tracing out a series of 5 wave sequences. The majority of Friday’s session was spent completing Waves 1, and 2. Having completed Wave 2 near the end of the session, the market headed down once again with Wave 3. It took the remainder of that session, and all of Monday’s session to complete that wave. Wave 1 of Wave 3 was a seemingly minor move, but Wave 2 turned out to be an inverted corrective wave that took the market lower. After finishing Wave 2, Waves 3, 4, and 5 quickly followed suit, completing Wave 3 near the end of the session.
With Waves 4 and 5 remaining in this sequence, we can expect the market to move higher, perhaps to the 1373 level, before putting in a final low for this sequence. We look for that low to be around the 1362 level.
It is possible that Wave 2 is the inverted correction, ending at 1372.25. Wave 3 would then terminate at 1370.45, Wave 4 at 1372.29, and Wave 5 at 1370.25, completing the 5 wave move from 1374.76. This scenario falls just short of our criteria, but being a larger degree wave it would take precedence over the previous count count. If we take out the 1374.76 high, this would be the correct count, and we would be in another 5 wave move up, likely taking us above the 1378 recent high.
From there we will have to look at the market for direction. We believe 1374.76 completed Wave 4 on the daily chart, so we would look for a small rally before heading back down to test the 1340 low. If we break through that level, we would need to complete another 5 wave sequence that could take out the 1378 high before heading lower.
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