In Friday’s post I touched on the possibility that
the market completed a 5 Wave sequence from the 1074.77 low, followed by the
completion of an inverted corrective wave from 1370.58. Today I will also
suggest that the market may have also completed a 5 Wave sequence from 666.79.
This does not mean that I am suggesting the market will undergo a severe
correction, but it is possible that we will see a significant correction.
I will start with the wave from 1074.77. Wave 1
carried the market to 1292.66, with Wave 2 ending at 1158.66. Wave 3 proved a
little more complex, featuring an inverted corrective wave, and terminating at
1422.38. Following that high, the market dropped to 1266.74, completing Wave 4.
Wave 5 has been the most complex of all. Wave 1 of 5 formed as a nested
inverted corrective wave. Notice the cluster of Wave 1’s near the beginning,
and the cluster of 3, 4, 5 Waves near the top at 1470.96, as the wave unwound.
Wave 2 of 5 was an inverted corrective wave that ended at 1485.01. Normally
wave 4 is the high (or low) point of an inverted corrective wave. Notice that
here, Wave 2 proved to be the high. With Wave 2 of 5 completed, Waves 3, 4, and
5 completed shortly thereafter.
Since September I have been calling for this wave
to terminate above 1560. The high of this wave turned out to be 1563.62.
If you look
at the Weekly chart, you will see a 5 Wave sequence from 666.79 completed at
1370.58, followed by a correction to 1074.77. With another 5 Wave sequence now
completed from 1074.77, the market either completed Wave 3 from 666.79, or Wave
2 of an inverted corrective wave from 1370.58. What occurred from 1563.62 was a
5 Wave sequence down to 1555.74, followed by a 5 Wave sequence up to 1562.86,
and then another 5 Wave sequence down to 1538.57. My model is based on
mathematical relationships between waves, and the sequence
1370.58-1074.77-1563.62-1555.74-1562.86-1538.57 satisfies my model requirements
for an inverted corrective wave. Recall earlier when I cited an example of an
inverted corrective wave in which Wave 2 was the high point.
So now my model has been satisfied for Wave 1 from
666.79 at 1370.58, and Wave 2 at 1538.57. What would be expected now are Waves
3, 4, and 5 to complete the sequence. From the 1538.57 low the market completed
a 5 Wave sequence at 1561.56. A 5 Wave sequence then formed to the downside at
1543.55. A third 5 Wave sequence then completed at 1557.74. Based on the
previous wave structure 666.79-1370.58-1538.57-1561.56-1543.55-1557.74 again
satisfies my model for a 5 Wave sequence. This count remains intact as long as
the market does not exceed 1587. Put another way, this market has topped unless
it can clear 1587.
If we compare several waves, I think I can
demonstrate that this is a real possibility. First look at the wave from 1266
to 1563. The waves in red are the largest degree waves. Notice red Wave 1 is
comparatively large, with blue Wave 1 (Wave 1 of the inverted corrective wave)
proportional to red Wave 1. Wave 2 of that inverted corrective wave was nearly
the same length as red Wave 1. After that the remaining waves completed within
a much shorter time frame.
Compare the previous wave to this one. As you can
see the structure is very similar, with the wave culminating with a series of
waves completing in quick succession.
Now look at the wave from 666.79. I am sorry the
waves at the end are a bit hard to decipher, but hopefully you get the idea.
If the market can move above 1587 while staying
above 1545.90, it would be most likely that Wave 2 from 666.79 has completed,
and the market should move significantly higher as it completes Waves 3, 4, and
5.
If the market falls below 1545.90, before moving
above 1587, it is most likely that the market has completed a 5 Wave sequence
from 666.79. While the wave configuration makes it difficult to be too precise
about the severity of the ensuing correction, the lower limit of the first
support area would be around 1440.
Even if a 5 Wave sequence has completed from
666.79, the outlook is not entirely bleak. Waves can take many forms, and I
will be watching this one closely. Thank you for your interest.
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