The last two days have been interesting in terms
of wave structure. From Monday’s 1858.71 high, the SPX dropped to 1854.69.
After an inverted corrective Wave 2, the index opened lower this morning to
complete Wave 3 at 1847.66. After a small bounce to 1849.94 for Wave 4, Wave 5
completed at 1843.49. The SPX was not finished moving to the downside however,
as the index want on to complete a larger degree wave as
1843.49-1845.34-1840.79-1842.42-1840.19. Waves of this structure often reverse
sharply after moving beyond Wave 4, which in this case was 1842.42. This was no
exception, as the SPX climbed to 1847.60 once clearing that level.
After pulling back to 1843.56 the SPX continued
higher, this time reaching 1852.91. The index then went into an extended
pullback throughout the remainder of the day. The SPX first formed a 5 wave
sequence that completed at 1845.24, and then formed an inverted corrective wave
then terminated at 1845.15. From there, the index made another small move lower
to 1842.43.
Looking at the wave formation from the 1840.19,
the SPX formed three waves to the upside, 1847.60-1843.56-1852.91. With the subsequent
move below the second wave low of 1843.56, the move from 1852.91 to 1842.43,
this could be interpreted as the beginning of an inverted corrective wave, which
would indicate lower prices to come. But taking into consideration the fact
that the 5 wave sequence lower from 1852.91, and the inverted corrective wave
that followed both completed between 1847.60 and 1843.56, the first two waves
from the 1840.19 low, it opened the door to another interpretation, namely the
formation of a semi-inverted corrective wave. When the small drop from 1845.15
to 1842.43 completed within my model’s parameters, this was confirmed.
Generally these formations are followed by a very
sharp move in the direction of Wave 1, which in this case is up. If this
interpretation is correct, I would expect the SPX to move slightly above 1855,
undergo a shallow pullback, and then continue higher.
If the SPX moves below 1842.43, this interpretation
is wrong, and the index should move to new short term lows. A move above
1858.71 would confirm this scenario.
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