Since making a low at 1676.03 last Friday, the SPX
has traded generally higher, but in a quite choppy fashion, seemingly awaiting
the release of today’s FED minutes. With many people believing that the release
of those minutes would decide the direction of the stock market, the lack of
conviction the past few days should have surprised no one. The difficulty has
been trying to decipher the shorter term waves to anticipate the longer term
direction. I have been consistent for quite some time that the market was
headed higher, with a minimum target of 1776.
As was the case yesterday, the SPX headed higher
at the open, moving to 1692 before pulling back. Another move higher brought
the index just below 1697 by mid-morning. At that point the SPX started to
sell-off, falling back to 1689. With the release of the FED minutes, the
volatility increased, with the SPX undergoing a series of sharp swings. The
first was to the upside, with the index spiking to 1694. The second was a quick
drop to 1686. That was followed by another sharp move higher to 1698, then a
drop to 1685 to end the day.
Since Friday’s 1676 low, I count 3 waves to the
upside, and 3 waves to the downside. The first 5 waves, 1691.85-1681.86-1693.19-1682.42-1698.43,
do not meet the criteria for a 5 wave sequence, an indication that the market
will move higher. The last 5 waves, however, 1681.86-1693.19-1682.42-1698.43-1684.94,
do appear to complete a sequence. Looking at the three moves lower, the first
wave was 10 points, the second 11 points, and the third 13 points. For each
wave, the length increased as the starting point became higher. This seems to
complete an inverted corrective wave from 1691.85. So the market has most
likely completed Wave 1 at 1691.85, and Wave 2 at 1684.94 of a 5 Wave sequence
higher, which most likely will carry above 1776.
There of course is still the possibility that I am
wrong, and the market will head lower from here. If the SPX moves below 1676,
the next support level is 1657.
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