Today we were looking for a continuation of the down move from Monday. We cited the 1407.23 high as the point from which a break above would require another 5 wave sequence up. That level was breached this morning, but did so in a way that completed a 5 wave sequence from 1397.68. From 1397.68 the sequence would be, 1407.23, 1406.86, 1405.06, and 1407.61. This played out on a very small level, but does satisfy our model.
From 1407.61 we did see a move down, more in keeping with the first move of another wave down. The market completed a sequence at 1402.28 within the first hour, and then rallied to the flat line. A second move to 1401.48, and a final drop to 1400.68 y 11:00am completed Wave 1 of Wave 5.
Most of the rest of the day was spent completing what turned out to be a rather extended corrective wave. By 11:30am the market had rallied to 1404 for Wave 1, and then pulled back to 1103. Wave 3 took the SPX up to 1406, and after a drop to 1403.75, finished the sequence at 1407.20, shortly after 3:00pm.
The market came very close to making new highs at this point, but after coming within a fraction of the day’s highs, sold off into the close. We identified a minor 5 wave termination point at 1404.70, and after a feeble attempt to bounce off that level, gapped through it to the downside. That type of move is typical of an inverted wave 2. The market finished at 1402.89, down 2.63 for the day.
With what appears to be an inverted wave 2 underway, our view is the market will continue to the downside. We do not believe the 1397.68 level will be the low of the move down from 1414. Our short term target continues to be 1393. Any type of bounce from there, coupled with a subsequent back below that level, would be extremely bearish in our view.
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