The SPX opened higher once again this morning,
reaching the high of the day early on at 1826.55. This week long rally has been
pretty impressive, with the SPX rising from 1737.92 to 1826.55, that would be
89 points for you Fibonacci fans, with but one lone 11 point pullback being the
only blemish on a nearly vertical move. Although impressive, this rally can
also be viewed as a classic short covering rally. As the index neared, and the
fell from, the 1850, many people, including myself, started calling for a
correction. The depth of the correction varied by analyst, but most were
looking for some sort of pullback. This view was reinforced as the SPX
continued to decline, eventually falling below 1740. This marked the largest
decline since the May-June 2013 move from 1687.18 to 1560.33. With ample
warning it is likely that many people had shorted, or at the least moved to a
neutral position. Once the index started moving higher, traders could not get
back in fast enough, leading to this impressive rally. The question now is
whether there are enough buyers left to push the markets higher, or has this
sharp rise only solidified the buy the dip mentality. Perhaps this will lead to
continued complacency if the markets start to move lower once more.
That, unfortunately, is a question that can only
be answered in time. My view continues to be that the SPX will move lower, with
a target of 1679. But getting back to the market, I will start with the move
from Monday’s 1791.83 low. The move from that low to Monday’s high of 1799.94
looks to be a Wave 1. The index then pulled back to 1797.31 into the close, and
then started off Tuesday morning by rising to 1806.45. I see these as Waves 2,
and 3. Wave 4 would turn out to be an inverted corrective wave, which topped
yesterday at 1823.54, and then completed near yesterday’s close at 1818.38.
Wave 5 then completed this morning at 1826.55. From there, the SPX pulled back
to 1815.97 in a 5 wave sequence, and then bounced back to 1822.27 in three
waves, before pulling back into the close.
My current count then has Wave 1 from 1850.84
completing at 1835.23, with the entire action from that point being an inverted
corrective wave completing as 1849.31-1737.92-1798.03-1791.83-1826.55. This
move could move slightly higher, but 1831 is the upper boundary for this count,
and any move above that would greatly increase the likelihood that a complete
sequence completed at the 1737.92 low, with the SPX now on its way to new
highs. I will address that scenario if 1831 is surpassed. Until then I will
continue to look at 1679 as the next target.
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