Wednesday's Market

Once again the market gapped down at the open, rallied into the afternoon, then faded into the close. Today’s opening move down took the SPX to 1348, part of an inverted corrective wave 2, which terminated with the rebound to 1353. From there the market completed waves 3, 4, and 5, taking the SPX to the low of the day at 1343. This completed a 5 wave sequence from 1366, and the market quickly rebounded in what would become a quite extended 5 wave corrective sequence. Initially this brought the market back to 1351 before a slight pullback. The next leg of this wave brought the SPX back near 1360, nearly erasing the earlier losses. After pulling back to 1352, the market moved ahead for wave 5, reaching 1363.73, and completing what we believe was the corrective sequence from the day’s 1343 low. The market then turned lower, dropping first to 1358, and then 1355. After climbing back near 1360 towards the close, the market fell back once again to 1354.

Earlier today we posted an update identifying 1343 as the termination of a 5 wave sequence from 1366, and said we would look for a bounce from here. At 10:45AM on StockTwits, (http://stocktwits.com/5wavemodel), we said we were looking the bounce to terminate between 1362 and 1364. The wave completed at 1363.73. So far this market has behaved pretty much as anticipated, and we have been able to identify each turning point as they have occurred. I point this out not to pat myself on the back, or toot my own horn, but simply to demonstrate the robustness of the model. The market makes a fool of everyone eventually, and I am sure it will make a fool of me soon. But that, too, will be due to interpretation, and not the model.

With that said, although the market completed a 5 wave sequence from 1366, it has not yet satisfied our model for a 5 wave sequence from 1374, nor from 1415. Today’s move to 1343, then, should be wave 1 of a 5 wave sequence itself. We continue to target the 1331-1325 level as the eventual low from 1415.

It would be nice if the market simply plummeted to 1331, and then 1325, but the reality is that the wave structures can become quite complicated. For that reason, at this point, we will keep an eye on certain levels for clarity.

Today’s action should be waves 1 and 2 of the sequence from 1266. We see the market going lower from here, but a move above 1364 would mean this count is wrong, and we could be headed higher.

We also believe we are in wave 5 from the 1415 high. While this wave structure seems pretty clear, there is a possibility of some alternate counts. None of these counts would satisfy the parameters of our model, but they come close. Should the market surpass 1374, one of these counts may be in play, and we could see a rally.

We continue to think our current count is the best, but markets such as these can see sharp moves, and we think it best to proceed cautiously. We still see lower prices ahead, as the sequences from 1415, and 1422, have yet to be completed.