The market spent most of last week to the upside after putting in a low at 1359 last Monday. Hitting the 1406 level on Friday put us within range of completing of a 5 wave sequence from that low, with a possibility of moving slightly higher before heading once again to the downside.
On Monday the direction was decidedly down, moving quickly to 1395. At that point the market attempted to rally, moving back near the 1400 level, before turning down once more, this time dropping to 1394. From there the market found some support, moving higher, back to 1398, as it neared the close. In the last few minutes of trading the market dipped to 1396.59, then rose to 1397.80 into the close.
It would seem today’s action confirms 1406 as the termination of the 5 wave sequence from the 1359 low. Last Friday’s drop to 1403 we consider to be wave 1 from that high, with the rise to 1405 wave 1 of an inverted corrective wave. Monday’s opening drop was part of wave 2, with the inverted corrective wave terminating at 1398.13. We expect the market to continue to the downside on Tuesday, with waves 3, 4, and 5 yet to be completed. This should be the continuation of the correction from 1422, and we will consider it as such. At this point a move back above 1406 would indicate another move higher. Levels to watch on the downside are 1385, 1359, and 1357. Breaks of these levels would be short term bearish.
Once again, we believe 1422 marks the high from 667, with a correction to 1388 being wave 1 of wave 2. From 1388 the SPX created an inverted corrective wave that terminated at 1359. The moves to 1391, 1385, and finally 1406 completed waves 3, 4, and 5, and wave 2 from 1422. We should now be moving back down for wave 3.
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