Wave 5 Targets Met

In Friday’s post we said we expected to move lower on Monday, looking for a target low of 1400-1401. From there we expected to see the market move higher to 1407, and then make a final low between 1394 and 1401, which would make the move from 1366.69 an inverted corrective sequence. The market did move lower at the outset today, hitting 1402.43 in the first 15 minutes. From there

the market moved higher as expected, hitting a high of 1407.16, right on our target.

The market did attempt a pullback from there moving back down to 1404.45 before moving higher once again. The failure to hit our target of 1394-1401, and the subsequent move back above the 1407.16 high, eliminated the possibility of the move from 1366.69 being an inverted corrective wave, and meant that we were indeed in wave 5 of the sequence from the 1340.03 low. That move back above 1407 was an indication that we were in a corrective sequence from the 1407.16 high. That sequence completed at 1409.70, with Waves 3, 4, and 5 quickly following, pushing the SPX to 1414.00, right at our target level for the anticipated top.

The market started to drop after hitting 1414, completing a 5 wave sequence from that top by the end of the session, closing at 1409.75. Although not visible on the 30 minute chart, at smaller time frames it appears the actual low of that 5 wave sequence was 1409.61, with what looks like an inverted correction wave developing.

An inverted corrective wave is usually indicative of a fairly sharp move in the direction of the underlying trend, which in this case is to the downside. Therefore, our expectations are for the market to experience a sell-off on Tuesday. We won’t rule out a small rebound, but we fully expect the 1414.00 high to hold. A move above the 1414.00 would necessitate a re-evaluation of the wave.

The 1414.00 level completes 5 wave sequences from 1389.97, 1340.03, 1074.77, and 666.79. We believe this completes this phase of the bull market from the March 2009 low, and expect a significant correction from here.