In hindsight, I should have kept my thoughts to
myself yesterday, and stayed with my unorthodox call on Wednesday of a 5 Wave
sequence from 1538.57 being completed at 1564.86. This would be Wave 3 from
666.79. The action of the market today, in particular the move below 1545.90,
confirmed at minimum that a 5 wave sequence from that low had completed.
The SPX also broke below 1547; the level I
mentioned yesterday as indicating a downtrend was most likely underway. That
downtrend may indeed have started, but the fact that the market remained above
1538.57 may mean there is one more surprise in store.
If you look at the 3 Minute chart, you will see
that from the 1564.86 high, the market completed a 5 wave Sequence down to 1549.80,
a 5 Wave sequence up to 1562.60, another 5 Wave sequence down to 1552.52, and a
final sequence up to 1560.26. This higher low, lower high formation can be an
indication of a nested inverted corrective wave, and that is exactly what
happened today. The market gapped down at the open, dropping to 1539.80. For
the next hour the SPX bounced in a narrow range, hitting a low of 1539.50. This
choppy trading will prove to be the most important aspect of today’s trading.
After bouncing around the 1539.50 low, the market
staged a rally that carried all the way to the close. After rising to 1548, the
market again bounced around in a narrow range until shortly before the close.
The SPX then made it all the way to 1554.66 before dipping into the close.
As I mentioned above, the market seemed to be
forming a nested inverted corrective wave from the 1564.86 high. These waves
can be very powerful, and that is what unfolded today. These waves require many
waves to complete near the end of the formation, as four degrees of waves need
to form before the wave has completed. Taking a closer look at the choppy
trading shortly after the opening gap down, reveals how these waves were
completed.
There are too many waves to delineate on the 3
Minute chart, so I expanded to a 1 Minute chart for demonstration purposes. The
highest degree wave is in blue, then light purple, green and deep purple. I
will explain this wave inside out, meaning I will start with the lowest degree
wave, and end with the highest. This shows how the waves are connected.
The lowest degree wave began at yesterday’s
1552.52 low, and formed 1552.52-1560.26-1539.80-1541.54-1541.42-1544.12, and
had a model value of .9999. The next degree wave started at the 1562.60 high,
with Wave 1 completing at 1552.52, and Wave 2 completing at 1544.12, the
termination point of the lesser degree sequence. This sequence was
1562.60-1552.52-1544.12-1540.64-1542.38-1539.50, with a model value of .999998.
The next degree wave followed the same pattern, and went
1549.80-1562.60-1539.50-1541.82-1539.86-1542.23. The model value for this
sequence was .9962. The final sequence from the 1564.86 then completed
as1564.86-1549.80-1542.23-1541.16-1541.68-1540.29, and a model value of .9962.
From the completion of that wave at 1540.29, the
SPX then completed a 5 Wave sequence to 1554.66 that contained an inverted
corrective Wave 4. The main sequence consisted of
1540.29-1545.01-1542.39-1548.10-1547.55-1554.66, and a model value of .9988.
The inverted corrective Wave 4 started at 1548.10, and formed 1548.10-1545.61-1547.17-1544.19-1549.76-1547.55.
This sequence had a model value of .9948.
Looking at the larger picture, the market has
completed 3 Waves from 666.79, 666.79-1370.58-1538.57-1564.86. It is possible
that from that point waves 4, and 5 also formed, with a move below 1538.57
confirming that. With the nested inverted corrective wave completing today, and
holding above 1538.57, the more intriguing possibility is that 1540.29 marks
the end of Wave 4 from 667, with Wave 5 now underway. Further evidence of this
count is the fact that nested inverted corrective waves normally indicate trend
reversal points, and the Waves 1, 3, and 5 from 1540.29, are expanding.
Normally at the end of a wave structure, the waves will contract, much as they
are with the larger wave structure from 667.
Given the structure already completed, Wave 5
would have an upper limit of 1589. More accurately, a termination point above
1589 falls below my correlation threshold for the points (666.79, 1370.58),
(1538.57, 1564.86), (1540.29, X), where X is the termination point of Wave 5.
Thank you.
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