Another Wave Down?

Last night I reviewed the long term SPX chart, and gave a target of 2030 on the downside. Tonight I'll analyze the shorter term outlook with the Hourly chart. From the 3393.52 high, the SPX formed a 5 wave sequence that terminated at 2880.89. The first wave took the SPX to 3214.65, Wave 2 at 3253.58, and Wave 3 at 3118.77. From there the SPX formed an inverted corrective wave for Wave 4. Normally either wave 2 or wave 4 forms one of these waves. In a normal sequence there is a relationship that develops between the impulsive waves 1, 3, and 5. In an inverted corrective sequence, the relationship is still between the first, third, and fifth waves, but these waves are counter trend waves. So Wave 4 went 3118.77-3182.51-3007.06-3097.07-2855.84-2959.72. One more move down to 2880.89 completed the fifth wave, and the sequence.

The SPX at this point took a bit of a breather, and managed a small rally to 3136.72. At the moment I am counting 2880.89 as Wave 1. This small rally I would count as Wave A of the inverted corrective wave that normally occurs. Wave 2 is the most likely spot for this.

From 3136.72, the SPX started another wave down. First came some very quick waves for 1, 2, and 3. 3136.72-3026.92-3081.65-2976.63. Wave 4 started with a move up to 3130.97, and then the bulk of the damage occurred in waves b, and d of this inverted corrective wave, as is normally the case. One more small move to 2478.86 completed wave 5, and the sequence.

So visually, looking at waves 1, 3, and 5 of both sequences, you will notice the relationship. In the first sequence from 3393.52 to 2880.88 each consecutive wave gets smaller. In the second, from 3136.72 to 2478.86, each consecutive wave increases. There is a mathematical component I use to objectify the relationship, but it visually notable. You will observe the same relationships between waves A, C, and E of the corrective sequences.

Once the market found a short term bottom at 2478.86, the SPX again attempted a rally which took it to 2710.89 on Friday. A couple of things to notice with this wave. First, it took it into overbought territory. Secondly, since we counted the first nominal rally from 2880.89 to 3136.72 as a Wave A, I would expect this wave, as a Wave C, to be similar in magnitude to Wave A. Wave A was just under 256 points, and this rally was just over 232 points. Fairly similar.

Given those two things, it seems likely that the 3136.72 was the end of Wave C, and the SPX should again move down for Wave D. These inverted corrective waves can take on many forms, so I'll be keeping a close eye on the market action from here.