Thursday's Market

After opening slightly higher today, the market dropped to 1400, and then quickly rebounded to 1403. That would prove to be the high for the day, as the market turned lower and fell to 1395. The market tried to recover from there, moving once again above 1400 to 1401. The SPX spent much of the rest of the day working lower, with only a few small bounces higher along the way. Just before 3:00PM the market hit its low for the day at 1389. From here the market tried to move higher, making it to 1393 before fading once again into the close, dropping back to 1391, before rising slightly into the close.

The action today looks like the completion of a 5 wave sequence from yesterday’s 1403 afternoon high. Wave 1 and a semi-inverted corrective wave 2 completed yesterday, with the drop to 1395 wave 3 of that sequence. The rise to 1401 completed wave 4 and the final drop to 1389 wave 5.

This completes three 5 wave sequences from 1415, those terminating at 1394, 1403, and today’s 1389. From this point, a rise back to 1400, and a drop back to 1387 would complete the 5 wave sequence. These are idealized values of course, and a drop to 1385 from today’s late afternoon high of 1393 would satisfy our model.

The short term outlook at this point is a little muddled, perhaps reflecting the uncertainty surrounding the market. Outlook number one has the market completing wave 3 from 1415 today, moving higher, and completing wave 5 around 1385. From 1385 we would expect the market to move to 1404 short term. This scenario seems to have flaw in our mind, with future market projections using these values turning into an endless loop of sorts, the market bouncing between 1404 and 1385.

The second outlook has wave 5 from 1415 terminating today at 1389. This value falls within our target range for wave 5. This would mean that the market will move higher, to 1404, from that 1389 low. This has some of the same issues as outlook number one, bouncing the market between 1404 and 1385. Both of these are possible, with 1404 and 1385 being the breakout values to watch.

The third outlook, and the one we currently favor, is that wave 1 terminated at 1394, and waves 2 and 3 are actually waves 1 and 2 of an inverted corrective wave, or wave 3 terminated today at 1389, and the move up from there is wave 1 of an inverted corrective wave. If 1385 fails to hold, or more likely, if we gap through it, this outlook would be confirmed. This would signal lower prices ahead, and fits more closely with our longer term viewpoint of another move down from 1422, most likely to the low 1300’s.