Friday's Market 02/07/2014

Well, today obviously did not go as I had expected.  After the SPX completed a 5 wave sequence from 1739.66 yesterday afternoon, it seemed probable that the index would resume the downtrend from the 1850.84 high. That did not happen, as the SPX moved to 1788.25 near the open, pulled back to 1777, and then moved steadily higher throughout the remainder of the day, topping out at 1798.03.

Looking at today’s move, it appears to be one complete 5 wave sequence, 1788.25-1786.63-1795.47-1793.98-1798.03, which included an inverted corrective Wave 2, 1777.28-1788.63-1786.77-1788.6-1786.83. If you recall, I had counted yesterday’s high as the completion of a semi –inverted corrective wave from 1739.66 low, and the completion of Wave E which completed an inverted corrective Wave 2 from the 1850.84 high. I had mentioned that the SPX could move higher and still support this count, the index moved above the upper boundary for this count, making it invalid.

With that count invalid, I must now re-evaluate my count. This takes me back to the January 29^th 1770.45 low. This is the termination point of Wave C of the inverted corrective Wave 2 from 1850.84. From that point I have counted 5 complete 5 wave sequences, 1798.77-1739.66-1773.46-1771.33-1798.03, which brings us to today’s high. This series is interesting because it meets the criteria for a 5 wave sequence. So the entire move from the 1770.45 low can be viewed as an inverted corrective wave. This can be either all of Wave C of the inverted corrective wave from 1850.84, or it could mean that the SPX completed 3 waves from 1850.84 as 1835.23-1849.31-1770.45, which was then followed by an inverted corrective Wave 4. Both of these counts suggest that the downtrend should now resume.

Of the two scenarios listed above, the first would still target 1679, while the second would present a very bearish case, targeting much lower than 1679. If the SPX continues higher from this point, the probabilities increase that the index is headed to new highs. It is also important to note that I still consider 1850.84 the completion of a sequence from 1074.77, and both of these scenarios are consistent with that view.