Since the SPX hit an all-time high a week ago
Thursday, the market has been in corrective mode. Monday the market fell
sharply, with the SPX finding itself nearly 45 points off its high. On Tuesday
the market tried to recover, but Wednesday and Thursday were once again to the
downside, with the SPX finding itself down over 60 points from the 1597.35
high. The market tried to rally again on Friday, and by the close the SPX had
risen nearly 20 points off the low.
I have re-worked my charts, and labeling system to
hopefully be more user-friendly. I have decided to use the more conventional
numbers for impulse waves, and letters for corrective waves. I have also tried
to be more consistent with the colors across time frames. I hope this will make it easier to follow.
In my opinion, the market completed a 5 Wave
sequence from the March 2009 low of 666.79 in May of 2011 at 1370.58. Wave 1 of this sequence
completed at 930.17, and was followed by a semi-inverted Wave 2. For those familiar with
Elliot Wave Theory, what I term a “semi-inverted corrective wave”, can be
thought of as an expanded flat pattern. Wave B in this pattern completes beyond
the beginning of Wave A, and Wave E finishes beyond the end of Wave A. Waves C
and D in my model finish within Wave A. Wave3 then took the market to
1219.80, with a simple Wave 4 to 1010.91 following. The sequence then
completed at 1370.58 with Wave 5. Creating points with the sequence
666.79-930.17-869.32-1219.80-1010.91-1370.58, gives us (666.79, 930.17), (869.32,
1219.80), and (1010.91, 1370.58). These points have a correlation of .9939.
This relationship between Waves 1, 3, and 5 is the basis of my model.
From that high of 1370.58, the market corrected to
1074.77. This turned out to be Wave A of an inverted corrective
Wave 2. Again turning to EWT for
an analogy, inverted corrective waves would be similar to extended waves. Wave
B finishes beyond the start of Wave A, and Wave E does not terminate beyond the
end of Wave A. Waves C, D, and E can finish in one of two ways with this
structure. It can either end in a zig-zag type pattern, or a pattern similar in
appearance to a running flat, with Wave D finishing beyond Wave B, and Wave E not
moving beyond the end of Wave C.
This inverted corrective wave turned out to be only
the beginning of a series of these waves, or a nested inverted corrective wave
structure. This structure would eventually create 5 Wave 1’s, and involve ten
wave degrees. The market is now in the process of completing this structure,
with Waves B, C, D, and E forming to complete Wave 2 of the next higher degree,
followed by Waves 3, 4, and 5 to complete the next Wave B, and so on. The SPX
at this point has four wave degrees left to complete.
The recent high of 1597.35 completed Wave B from 1292.66. The majority
of this week was spent completing Waves 1-5 of Wave C, which appears to have
ended at 1536.03. Friday’s rally may also have completed Wave D of this sequence, meaning
one more move down to complete Wave E.
Assuming that Wave C completed at 1536.03, it seems that there are two
possibilities as to have this wave will complete. Going back to my earlier
description of inverted corrective waves, they can complete in one of two ways.
The first is in the form of a zig-zag from Wave B. This resolution is common in nested wave
structure. Therefore I would expect a small correction from the Wave C low, followed by another
move to the downside. If Friday’s move was the corrective move, the market
would be poised to move lower from this point. If Friday’s high of 1555.89 turns
out to be Wave D,
my target for Wave E
would be between 1495 and 1448. If this structure does end in a zig-zag type
fashion, I would expect Wave E to be longer than Wave C. 1597.35-1536.03=61.32. 1555.89-6132=1494.57.
This gives the upper bound of my range. 1448 is the lowest price at which my
model would be satisfied given the already completed wave structure.
The second possibility is the more intriguing. As
mentioned earlier, the second way an inverted corrective wave can resolve, is
to have Waves C, D, and E to complete with the look of a running flat. In this
scenario, with Wave C
completed, I would expect Wave D to carry above the start of Wave C, which would be 1597.35. Wave E would then complete
above the end of Wave C, which is 1536.03. If the market moves above 1555.89,
the possibility of this scenario would increase. 1561 would be the next
resistance level, and then 1579 beyond that.
Thank you.
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