After dropping to 1558.47 on Monday, I was looking
for the market to subsequently rally to the 1578 level. The market built on the
small rally into yesterday’s close this morning, moving markedly higher at the
open. Although it is most likely that the SPX formed Waves 1, and 2 of a 5 Wave
sequence that will ultimately bring the index to 1578.24, the failure to reach
that level today has opened up several interesting possibilities.
The market opened higher today, and kept running
higher for the first hour and a half of trading until reaching the day’s high
of 1573.66. This turned out to be a complex nested inverted wave
structure. You will see a series of 1’s
from the 1558.47 low, and then the unwinding of the series moving into the high
of 1573.66. The main sequence was
1558.47-1559.46-1569.86-1571.65-1571.03-1573.66. This gave a model value of
.9978. This sequence can be seen in blue on the 3 Minute Chart.
After reaching that high the market struggled. A
small pullback turned into a substantial drop from the highs, eventually
reaching 1565.55. This was a more characteristic wave structure, a simple 5
Wave structure containing an inverted corrective Wave 2. This series was
1573.66-1572.43-1572.53-1570.16-1570.41-1565.55. The model value for this
series was .9996.
The most reasonable interpretation is that these
are Waves 1, and 2 of a 5 Wave sequence that will result in the SPX rising to 1578.24,
my target for the sequence from 1546.22. If these indeed are Waves1, and 2, I
would expect the market to move higher on Wednesday, or at a minimum, hold the
1565.55 low seen today. The market action today also opens up at least two
other scenarios worth noting.
If the SPX fails to take out the 1570.11 high seen
after the 1565.55 low, a drop to 1557 would complete a semi-inverted corrective
Wave 4 from 1570.57, and I would then expect to see the market rally, with the
1576-1578 area remaining my target. A move above 1570.57 while holding the
1565.55 low would take this scenario out of play.
The second scenario would be slightly more
bearish. If the market moves slightly lower, between 1560.40, and 1562.90, it
is possible that an inverted corrective Wave 2 from 1563.95 has completed. From
there, a rise to 1564.70-1565.40 could complete a 5 Wave sequence from 1538.57,
and Wave 3 from 666.79. I would then expect a correction, which will hold above
1538.57, followed by one more wave moving above 1565. That would complete a 5
Wave sequence from 666.79 and portend a more severe correction.
In summary, I would still expect the SPX to move
to 1578 unless the index falls to 1560-1563, rises to 1565, and then falls
below 1560.
Thank you.
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