Waiting Patiently for a Top

“If I have ever made any valuable discoveries, it has been owing more to patient attention, than to any other talent.”

Isaac Newton

The lack of movement in the market the last several days certainly has tried the patience of investors. However this seeming inaction reminds us that the market works at its own pace, and not that of investors. The market has been telling us that it has not as of yet reached its target. As the market meanders, we believe it is also laying the groundwork for a potential high.

We set a target several days ago of a high occurring in the S&P500 above the 1378.79 level. Our target remains intact, with the action of the last two days being part of one last push higher. The 1352.28 low that occurred last Thursday is the point we are using for the termination of Wave 2. If we use the subsequent high of 1371.94 as Wave 3, and the following low of 1354.92 as Wave 4, we can extrapolate a target for Wave 5 between current levels and 1382.5. Since our target range for Wave 5 was between 1378.79 and 1421.75, we can now narrow our target to between 1378.79 and 1382.5. This would satisfy our model for both waves. Once we achieve our target levels, a move back below 1352.28 would confirm a corrective wave sequence has begun.

We hope our “patient attention” will pay dividends shortly.

5 Wave Model Counts March 2009 - Present

Here is the 5 Wave Model wave count from the March 2009 lows. As you can see, each wave breaks down into a smaller five wave sequence. This numbering is not arbitrary, or tentative, but is based on the precise, and unique, mathematical relationships between the waves themselves. These relationships have held true at every level through over 80 years of data.

Many of the waves are straight forward sequences, but others, such as Wave 4, are more complex. A series of inverted waves occurred during Wave 2, leaving the termination of that wave below the termination point of Wave 1. The same thing occurred during Wave 2 of 5. Such inversions are normal, usually appearing at least once in a given sequence.  These inversions adhere to the same wave relationships as normal waves, and thus can be identified as they occur.

We are now approaching Wave 5 of 5. Waves 3, 4, and 5 have yet to complete, but due to the wave structure these should be short, quick waves. As mentioned earlier, these should terminate somewhere slightly above the 1378.79 level. Once this has been completed, a five wave corrective sequence will begin.

Since this corrective sequence will be a wave 2, an inverted wave is possible. This can take on several shapes, but could very well carry the market to new highs after a short corrective phase. Only time will tell.

Major Market Top?

The nearly uninterrupted, two month run-up in the market is about to come to an end. According to our 5 Wave Model, this is the last stage of the 5 wave sequence which began last October with the S&P500 at 1074.77. Although this wave has proven quite intricate, it has unfolded perfectly. More importantly our model indicates that this also completes a 5 wave sequence from the March 2009 lows of 666.79.

From the 666.79 low on the S&P500, the Wave 1 impulse wave terminated at 1219.80. This wave corrected in a 5 wave sequence down to 1010.91. This was Wave 2. Wave 3 carried the market to a high of 1370.58. Wave 4 ended at 1074.77. After Wave 4 our model forecasted a Wave 5 high between 1378.79, and 1421.75, with a target of 1398.60. With only the last few waves left to be resolved from the sequence beginning in March 2009, it now appears Wave 5 will terminate at the lower end of the range. There will be one more push higher, moving the market above 1378.79, and then the markets will enter a 5 wave corrective phase.

It is too early to forecast a price for this phase, or even what form it may take. It is possible that this corrective wave will be an inverted wave, which would allow the market to move higher. For now expect the market to move lower after one final high, and wait for the market to reveal the next wave structure.

The 5 Wave Model is a wave counting method similar to Elliot Wave Theory, but based on specific relationships between waves. In this model each wave sub-divides into 5 smaller waves. The termination points can be exactly determined in real time by wave relationships.