With the action of today’s market, I was quite prepared to throw in the towel on my “1538.57 will prove to be the low of this correction” statement. However, after reviewing my charts this evening, I will hold onto my towel for at least one more day. Although there is a very real possibility that the SPX will fall below that low, it is also a very real possibility that it will not. The rub is that in the medium term, taking out that low would be the more bullish scenario.
The market dropped at the open, falling below 1551, and remained lower throughout the day. After attempting to rally following the opening drop, the market fell further to 1548.41. A more sustained rally ensued, but after briefing rising above 1555, the market started another leg lower. It finally found a bottom at 1543.55, and rose above 1550 before falling into the close.
After yesterday’s high of 1561.56, the SPX formed a 5 Wave sequence into the 1548.41 low. The SPX then formed 3 additional 5 Wave sequences, one into the 1555.31 high, another into the low of the day at 1543.55, and then one more into 1550.79 high shortly before the close. With only 4 sequences discernible from the 1561.56 high, I do not believe that a full wave has completed from that point.
Several options are possible at this point, and I will start with the one that keeps intact Tuesday’s 1538.57 low. This is also the simplest resolution, and assumes that an inverted corrective wave completed at the aforementioned low, and that 4 Waves have completed from the 1561.56 high. The target for Wave 5 would be 1538-1540, and allows for the low to remain intact. If that low holds, we should see one more rally that probably will not exceed 1572. As I mentioned above, this would also be a medium term bearish scenario, as it would likely mean a 5 Wave sequence from 1074.77 has completed and Wave 3 from 666.79. A rather steep correction would be anticipated.
The alternate scenario assumes that 4 waves have unfolded from the 1563.62 high, with Wave 5 underway. The target for Wave 5 would be 1495-1518. This could play out in several ways. If the market opens higher, I would expect resistance at 1553. This would complete an inverted corrective wave from the 1548.41 low, and would indicate waves 3, 4, and 5 to the downside are yet to come. It is also possible that the market completes a 5 Wave sequence from 1561.56 at 1538-1540, and then starts a larger degree sequence into the 1495-1518 target area. This scenario would allow for a much higher upside target.
If the market opens lower, look for support at 1538-1540. If the previous low of 1538.57 holds, look for one more rally up to 1572. If that low does not hold, look for a move to 1495-1518. If the market opens higher, look for resistance at 1553, and then a move down to 1495-1518.