Considering the volatility the indices have
experienced lately today was in comparison rather tame. There was no gap
opening this morning, as the markets opened flat, then moved above and below
the flat line, settling at 1672.96. The SPX then tried to rally; moving above
yesterday’s high, and rising to 1677.41. Another round of selling took the
index down to 1672.33, where it found some support. The SPX continued to trade
in a narrow range until late afternoon when the buyers came back. This buying
led to an almost six point rally into the close.
I believe that lately I have been guilty of trying
to have too many waves complete in too short a time. Taking today’s market
action into consideration, it now appears that Thursday’s 1671.03 high marked
the end of a sequence from 1647.66, and not 1671.00 as I had thought. As I
mentioned before, this wave completed without a complex corrective wave, which
usually results in a higher degree wave forming from the previous low. That
seems to be exactly what happened, as this morning’s 1677.41 high completed the
third wave, and this afternoon’s high of 1679.74 completing the fifth.
With the sequence from 1647.66 completed, the next
step is to examine the sequence completed so far from 1604.57. The structure so
far consists of a 5 wave sequence that completed at 1627.06, a pullback,
another sequence completed at 1657.92, another pullback, and now a third
sequence higher that completed today at 1679.74. Taken together, these 5 waves
do not yet appear to complete an entire sequence from the 1647.66 low, which
makes it most likely that the SPX is forming a complex correction.
Looking at the first pullback from 1627.06, we see
that it was just over 12 points, and touched the 55 period EMA. The second
pullback was just over 10 points, and again touched the 55 period EMA. If the
SPX is indeed forming an inverted corrective wave as I suspect, I would expect
another pullback to occur at this point. This pullback should be proportional
to the previous two pullbacks, which means it should be slightly less than 10
points. Ideally, a pullback to 1670 would satisfy the parameters for an
inverted corrective wave from 1627.06. This wave would be 1627.06-1614.71-1657.92-1647.66-1679.74-1670.
As with the other two pullbacks, this one should touch the 55 period EMA, which
at the moment sits at 1669.97. Looking at the sub-wave structure of the 5 wave
sequence from 1647.66 to 1679.74, a first support level of 1670 is also indicated.
This makes it seem likely that we can expect a pullback from today’s high to
1670.
Assuming that pullback occurs, it would mark the
completion of an inverted corrective wave from 1627.06. This would then be Wave
2 from 1604.57, with waves 3, 4, and 5 needing to complete. Again, waves 3, and
5 need to be proportional to wave 1, which was just over 22 points (1604.57-1627.06).
With the inverted corrective wave being so strong, it is likely that wave 3
will be somewhat smaller than wave 1, and wave 5 smaller than wave 3. Most
often in cases like this, wave 5 completes just above the high of the
corrective wave (1679.74), with the total length from wave 2 to wave 5 being
approximately equal to wave 1. Given a pullback to 1670, this means this
sequence should complete near 1692. At that point I would expect a slightly
larger pullback.
The second support level indicated by the sub-wave
structure of the just completed wave is 1659. Should the SPX fall to this
level, I would need to consider that 1679.74 marked the high from the 1604.57
low. Either count suggests higher prices lie ahead.
I would look for a pull back to 1670, followed by
a move higher to 1690-1692. That should be followed by a slightly larger
pullback. If the SPX falls to 1659, I would expect higher than that 1690-1692
level.
Thank you.
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