The End of the Correction?

After the run-up on Wednesday, we were looking for a pullback today, calling for possibly a move below 1385. This was based on our analysis of the move up being part of an inverted corrective wave which terminated on Wednesday at 1385. We have been keeping an eye on a slightly different count that would make Wednesday’s 1391 opening high a wave 5 termination point. We will discuss this count further in a moment, but for now we’ll take a look at Thursday’s action.

The market opened slightly lower, but very quickly reversed course, rising to 1393, and moving above the high from Wednesday. We now believe this completed a 5 wave sequence from Wednesday’s 1385 low. After correcting slightly to 1390, the market turned higher once again, hitting 1393.52, pulled back to 1392, and then turned markedly higher. Closing in on 1398, the SPX completed another sequence from 1385, but barely paused as it continued higher, eventually topping at 1402.09. This completed yet another sequence from 1385. The market pulled back towards the close, falling just below 1400, and closing at 1399.98.

Yesterday we said we saw a 5 wave sequence from 1358.79 being completed at 1391.37. However we were keeping an eye on a concurrent count that pointed to 1390.81 being the 5 wave termination point from. These two counts seemed to be converging on the same point, but today’s action makes it clear that 1390.81 is the correct termination point. The waves for this count would be 1358.79-1365.79, 1365.79-1361.91, 1361.91-1375.57, 1375.57-1367.86, and 1367.86-1390.81.

So now, if we look at the wave structure from the 1357.38 low, we count a five wave sequence back up to 1388.13. From there the SPX formed a semi-inverted corrective wave, bringing the Index back down to 1358.79. Up to this point, we continually stated that we did not count a 5 wave sequence from 1358 -1393, and we did not see the correction as being over. We remarked at the time that holding above the 1357 level may prove to be important, and first suggested a semi-inverted corrective wave having formed. We called for a move slightly above the 1388 high for wave 3 of this sequence. As we stated earlier we now consider 1390.81 the termination point of wave 3. The slight pullback to 1385 was wave 4, and today’s action to 1402.09 should complete wave 5. We now have a 5 wave sequence having been completed, and would now expect the down trend from 1422 to continue.

Should we move back down below 1385, and then break into higher ground, it would appear that the move from 1357 to 1402 was only wave 1 of a move much higher. We expect the market to continue lower from this point, but we will keep an eye on those levels for indications that the correction is over.