At Wednesday’s close, the SPX stood at 1405.54, right in the midst of what we identified as the termination range of a semi-inverted corrective wave from the 1398.2 low. That turned out to be the correct analysis of the wave structure, as the market opened, dropping to 1397 in the first few minutes of trading. Within the first half hour, the index hit 1394.5, completing Wave 3 from the 1419 high. A short rebound to 1398, and a final drop to 1391.56 completed Waves 4, and 5 of that sequence.
With a completed 5 wave sequence from 1419, the market was now in a position to rally. The first move was to 1394, and after dropping back to 1392, it quickly rose again to 1396. After hitting 1396, the market spent the next hour in a narrow trading range, finally finding its way down to 1393.66. From there the market rallied again, forming a 5 wave sequence from 1393 up to 1402.80. This completed a 5 wave sequence from the 1391 low, and interestingly enough marked almost exactly a 38.2% retracement of the drop from 1419. However, instead of ending the rally there, the SPX dropped to 1400, and then extended the rally through the final hour of trading. This extension of the rally was very interesting, as it also completed another 5 wave sequence from 1391, 1404.61, before fading to close at 1403.28.
Since we have completed a 5 wave sequence from the 1391 low, we can expect the market to head down once again. Should we surpass the 1404 high, we would need to form another sequence from that low. Longer term we are keeping an eye on 1419, and 1387. A breakout from either point should give an indication of the next move. At this point we still expect the market to move lower, with 1419 the termination point of a 5 wave sequence from 667. Only if we move above 1419 would that outlook change.
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