Tuesday's Market

Another interesting day, with the market opening sharply lower, which continued the move down from yesterday’s 1374 high. That opening drop completed a 5 wave sequence from that high, but that would prove to be but wave 1 of a larger 5 wave sequence. After completing the sequence the market moved slightly higher, rising to 1363, before continuing down. This move saw the SPX drop first to 1352, where wave 3 terminated, and finally to 1347.75, completing the 5 wave sequence.

Here the market found some buyers, and they quickly drove the market back to 1355. After falling to 1350, the buyers stepped in again and carried the market higher for the rest of the day. At 1359 we believe wave 3 of this corrective wave was completed, and after a brief pullback the SPX powered ahead to 1366. We believe this completed the 5 wave corrective sequence from 1348. The market pulled back slightly from that level, but remained fairly steady into the close.

We believe the move from 1374 to today’s low of 1348 represented wave 1 of a yet to be completed 5 wave sequence. We still do not see a completed 5 wave sequence from 1415, and believe this sequence will terminate when we have completed the sequence from 1374. While the rally off today’s low was a bit more than expected, it kept our current wave count intact, and played out in well defined 5 wave sequences. Only a rally above 1374 would invalidate the current count, with a move above that level pointing to a more extended rally at the minimum.

Our current outlook is that we are about to, or have just, started wave 3, of wave 5, of wave 3, from the 1422 high. We expect the SPX to complete wave 3 from 1422 somewhere below 1331. With the wave structure today, it is possible that it will be significantly below that level. From there we expect a wave 4 rally, and then a final low to complete wave 5 from 1422. Only then can we think about making new highs.

We will caution again that our waves can take many different forms, and we can only be certain of that form when a wave sequence has terminated. We are offering here our best interpretation of the wave structure given the available data.