It was quite a week for the markets. The euphoria
of the previous week carried over, as new all-time highs were recorded on both
Monday and Tuesday. That euphoria came to a screeching halt after another all time high on Wednesday,
however, as the indexes fell precipitously into Thursday morning. The markets
then entered a trading range, and finished the week at a cross road ahead of
the long weekend. This could be a mere pause as the markets digest the recent
extreme move to the upside, or the beginning of a more extended correction. My
bias up to this point has been towards a mere pause before one more move
higher, but after an extensive review, the evidence seems to be mounting that a
larger correction has started.
After ending the previous week in rarified air,
the SPX continued to move higher this week, hitting an all time high of 1672.84
on Monday, and following that with another all time high of 1674.93 on Tuesday.
The markets moved lower on Wednesday after hitting another all time high of 1687.18, falling to 1655.59, with a gap down open
on Thursday bring the SPX down to 1635.53. This proved to be the low of the
week, as the SPX rose to 1655.50 off that low. Another gap down open on Friday
took the SPX to within a point and a half of that low, before again moving
higher.
As I mentioned on Friday, the move down from 1687
can be counted two ways. The first as a completed 5 Wave sequence at 1635.53,
which would be consistent with the SPX now moving higher to possible new high
ground. The second count has a wave 1 completing at 1672.96, and is followed by
a partially completed inverted corrective wave 2. Again, my preference up to
this point has been to see this as a pullback before the SPX makes one more
high. If the SPX can move above 1660 this count would remain in effect. It is
becoming more and more likely that this is the start of a larger correction.
This entire move from 1343.35 to 1687.18 has been
quite difficult to follow. I have been counting this move as the unwinding of a
series of nested waves from the 1074.77 low. Although this count has allowed me
to track the market moves fairly well, it has always seemed over complicated,
and gives wide ranges for my projections. Looking at this move over different
time frames, and taking into account the totality of the wave count from
666.79, there is an alternate count for that move that may ultimately work
better. The start of this count remains the same; Wave 1 completed at 1448, and
was followed by an inverted corrective Wave 2, which ended at 1485.01. Wave 3
then completed at 1597.35 and Wave 4 at 1536.03. A 5 wave sequence from 1343.35
then completed at 1661.49. This was then followed by an inverted corrective Wave
2, which finished at 1662.67. The move of 1684.16-1682.91-1687.18 then
completed the entire sequence from 1343.35.
One of the issues with viewing the current move
down as being complete is the fact that it is difficult to project the SPX
moving above 1660 given the current wave structure. Most projections only have
the SPX moving into the 1655-1660 area. This is not to say that it cannot
happen. Again if the SPX does move above 1660, it is likely that we will see
new highs.
If the SPX moves into the 1655-1660 area, and then
pulls back, it would seem likely that an inverted corrective wave from 1672.96
has completed. If that happens, then my projections start to converge around
the 1540 level. If a 5 wave sequence completed at 1687.18 as discussed above,
this could be the last wave of an inverted corrective sequence from 1422.38.
This would take the form 1422.38-1266.74-1470.96-1343.35-1687.18-X. This would
project the current wave to complete above 1542. In addition the secondary
support level indicated by the sub-wave structure is 1550 (the primary support
level is 1654). Lastly, if an inverted corrective wave completes at 1655-1660
from 1687.18, it would project the entire sequence to complete at 1542.
Although this market can still go either way, at
this point I can give some parameters that would signal a breakout in either
direction. Above 1660, the SPX should move to new highs. A move back below 1635
should mean this downtrend should continue to 1542.
Thank you.
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