At this time last week, I posted that the market was due to complete a 5 wave sequence from 1422. My target range was between 1265 and 1270, with my actual target being 1268, from which point we could see a rally. On Monday we got that low at 1266.74, and from there the market went into rally mode. At its best level, the SPX hit 1329, and then saw the only significant move down for the week, dropping back to 1308. After that the market again found itself moving higher, finishing the week at 1325.
According to my model, it appears the market has completed for waves from the 1267 low, and is in the process of completing wave 5. You will be able to see waves 1 through 4 on the following chart.
Wave 1 can be broken down into 5 sub-waves, which can be identified using my model. One of the secondary relationships that develop using my model, takes those sub-waves, and projects two possible price targets for wave 3. On Monday, using these relationships, I projected a wave 3 price of either 1285, or 1294.
On Tuesday, the market did reach 1285, but I only identified that as wave 3 from 1273, not from 1267. Using the sub-wave structure from 1273, I set a target for wave 3 from 1267 between 1294 and 1296. On Wednesday the market rose sharply at the open, where it reached 1296.34. After a short pullback, the market moved above 1296, with that pullback becoming wave 4 from 1267. With 4 waves completed, my model could now project a termination point for wave 5 above 1333. Using the sub-waves for wave 3, my secondary relationship also indicated a wave 5 termination point above 1333, with the optimum being 1345.
From the wave 4 termination point at 1294.46, the wave structure started becoming slightly more complex. It appears that the market has completed 4 waves from that point, with wave 5 of 5 now underway. The first wave of this sequence moved the market to 1303.53. The market then formed an inverted corrective wave 2, which terminated at 1305.78. Wave 3 contained another sharp opening rally, taking the market to the rally high of 1329.05.
Wave for was the only significant pullback thus far of this rally. The market first completed a 5 wave sequence to 1312.68. At this point I said the market could move slightly lower, with support a 1306-1307, after which the market would move to a rally high, completing wave 5. These projections were based on the secondary relationship using the sub-waves from 1329 to 1313. The next day the market did open lower, dropping to 1307.77, before resuming the rally.
This now brings us to wave 5 of 5 from 1267. From the 1308 wave 4 low at 1308, the market moved higher to 1323, which completed a 5 wave sequence. Another inverted corrective wave formed from there, which terminated at the close on Friday.
Using the wave structure from 1267, wave 5 would project above 1333. The wave structure from wave 4 at 1295 indicates a termination point between 1331, and 1337. Using our secondary relationships the model gives a target above 1328. Given these projections, a wave 5 high between 1333, and 1337 would satisfy my model the best.
Using secondary relationships once again, the model projects wave 3 from 1308 to terminate at 1326-1327. Putting this all together gives us a scenario of a rise to 1326-1327, a very minor pullback, and then a wave 5 high between 1333, and 1337.
After making that high, I would be expecting some sort of correction. In a market like this, corrections can be quite shallow, amounting to no more than a pause. There is also the possibility of an irregular correction, which again would result in a very minor pullback. Given the scenario I have outlined above, this may be a bit more than that. If we see the rise, small pullback, and final top at 1333-1337, the small pullback would be considered a wave 4. These formations usually correct rather sharply after moving beyond wave 4. Should we drop below that wave 4, and rise to new highs, it would signal the correction was very shallow, and the next up move could be quick.
Longer term, I believe the market will move higher, minimally retesting the 1422 high. I will be working on more exact targets for the next move up tomorrow, and also more exact support levels to watch.
Hi Steve, I am not with you on if we see the wave 3 rise and follow by a small pullback, we would see a quick move up to wave 5? or it signals the correction after wave 5 is minor?
ReplyDeleteHi Jeff,
DeleteIt does get a bit confusing, sorry. My first point was that corrections can be quite short, and shallow. As an example, look at how the market reacted after hitting wave 3 at 1296.34 this week. The short move to 1294.96 was wave 4, with the move back above 1296 signaling the end of the correction.
The second point was that given how I expect the end of this wave to play out, in a quick 3-4-5 sequence with diminishing wave lengths, the correction could be more substantial. Again look at the recent move from 1329 to 1307. Wave 1 carried from 1329 to 1312, with waves 2-3-4-5 completing quickly with diminishing wave lengths. Usually, after completing wave 5, a move back beyond wave 4 signals a much further move in that direction. If the market moves beyond wave 4, and then reverses and carries beyond wave 5, it would signal the end of the corrective phase.
So let’s say waves 3-4-5 of the current wave complete something like 1327-1325-1333. After hitting 1333, a pullback below 1325 would indicate a further downside move. If the market moves below 1325, and then reverses to move above 1333, most likely the corrective phase would be over, with the market then moving to higher levels.
I hope this helps.
Steve