The market opened the week by moving to a new uptrend high of 1391.74. This completed a 5 wave sequence from the 1329.24 wave 4 low, meaning the market was due for a pullback. From the 1392 high, the market traded in a narrow range for the rest of Monday, and that range bound trading continued through Tuesday, and for most of the day on Wednesday. On Wednesday afternoon the SPX broke down below that narrow range, dropping to 1373 before moving back into the 1387-1379 range. The market then broke decisively to the downside on Thursday, dropping to 1361 near the open, and then after recovering to 1374, fell to 1354.65. This completed a 5 wave sequence from the 1392 high, and Thursday afternoon found the market climbing steadily back to 1366 near the close. That rally sparked a gap up opening on Friday, with the market hitting 1384, and then climbing to a new uptrend high at 1394.16.
Coming into this week, my count from the 1266.74 low had wave 1 completing at 1335.52, followed by a semi-inverted corrective wave 2 that took the market up to 1363.46, before terminating at 1309.27. Wave 3 has been an extended wave, with wave 1 of 3 lifting the market to 1320.29. Just as with the larger degree wave, wave 2 of this sequence was a semi-inverted wave, with a high of 1374.81, and then ending at 1325.41. Wave 3 took the market up to 1380.39, before a wave 4 low of 1329.24. With four waves completed, the projection for wave 5 was between 1387, and 1404, which fit nicely with my 1393 projection generated by the sub-waves of the 1267-1335 wave. The sub-waves of wave 3 of this sequence also projected to 1387-1395. Monday’s move to 1391.74 satisfies all the criteria for the completion of wave 5 of 3.
If the move to 1392 completed wave 3 from 1267, wave 4 most likely terminated at 1354.65, and this would put us in wave 5. My targets for this wave have been either 1426, or 1497. The projection using the four waves completed so far would yield a range of 1335-1375 for the wave 5 high.
I view this current 1387-1397 support/resistance level as very significant. Until the market can clear this level, there are several possibilities. The current pullback from 1394 could end at this point, or extend down near 1378. A move slightly above 1394 would complete another 5 wave sequence from 1329, which would then be the termination point of wave 3 from 1267. Wave 4 could then terminate at a point that would more precisely target either 1426, or 1497. There is also an outside possibility that the market will complete a 5 wave sequence from 1267 at these levels, meaning the market could undergo a significant pullback, or even re-test the 1267 low. I see this as a low possibility because it would mean the move from 1267 to 1363.46 was a 5 wave sequence, which is not my current count.
Short term, the market is within the 1387-1397 support/resistance cluster. Support then would be at 1367, and then 1356-1358. Resistance is at 1406, and then 1426.
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