When You're Wrong You're Wrong

Over the weekend we said we believed 1399 marked the high of wave 2 of a larger correction from the 1414 high, and that a move above 1399 would invalidate that count. We didn’t have to wait long for us to be proven wrong, as the market opened above that level, and continued to move higher throughout the day.

It would now appear that 1399 was a wave 1 of a larger move to the upside. The slight pullback on Friday turned out to be wave 1 of an inverted corrective wave, with wave 2 occurring at the opening today. That wave carried the market to 1412 before pulling back slightly for wave 3. Wave 4 is in progress now, with another small pullback of three to five points expected for Wave 5. That would complete wave 2 of the move from 1386, and waves 3, 4, and 5 should follow.

So now that we have made new highs for this move, it would be easy to jump into the bullish camp. In our analysis we see one more hurdle for the market to clear before we turn bullish. If we reconsider 1378 as the completion of a 5 wave sequence from the 666 low, there is a possibility of completing another 5 wave sequence slightly above where the market is today.

Using 1378 as the termination point of wave 1, the 1340 low could conceivably be wave 2. 1414 becomes wave 3, 1387 wave 4, giving us a projection for wave 5 around 1421. If the market complete a 5 wave sequence from 1387 in the neighborhood of 1421, that would complete a 5 wave sequence from the 666 low. From there we could expect another move to the downside.

Should the market move above that level, the next most likely scenario would be 1378 as the termination point of wave 1, with the drop to 1340 wave 1 of an inverted corrective wave. The move to 1414 and the subsequent drop to 1387 would be waves 2 and three of that corrective wave sequence, putting us now in wave 4. If that scenario plays out we would see another small correction after wave 5, followed by waves 3, 4, and 5 from the 666 low. This would be a very bullish scenario.

For now we will let this wave play out, keeping a close on 1421. The market should let us know where it’s heading from there. In the short term, we would expect the market to move above the current 1416 level.