Today was an interesting day. A lot to update, so I'll get started. I mentioned in yesterday's update that a 5 wave sequence had completed Wednesday at 396.59. As of yesterday, SPY had moved off that low in three waves. Today's session started with some follow through from yesterday. An opening gap higher propelled SPY over the 400 level to a high of 401.48 shortly before 11:00am. For a brief moment it appeared the market may continue higher. After reaching that high, SPY started lower, looking to complete an inverted corrective wave before another move higher. SPY however broke through the lower boundary of that corrective wave, and continued lower the remainder of the day.
Shortly after noon, SPY had fallen to 398.15. After a very short rally attempt, the stock continued lower, dropping to 394.28 just after 2:00pm. After another feeble rally attempt, SPY fell to the low of the day at 390.53. Following a move higher, SPY closed the day at 391.58.
The first item of consequence today was the move to 390.53, which took out the previous 392.33 low. This clarified my dual count from this weekend. This would confirm my original count from the 418.31 high.
To review that count, I have the move to 407.57 as Wave 1. Wave 2 was an inverted corrective wave, shown here as Waves A, B, C, D, and E, with Wave E completing at 407.45. With a 5 wave sequence completing from that 407.45 high yesterday, we now show Wave 3 completed. The implication of this count is SPY should move lower.
I will cover the price action from yesterday's low in detail due to the ramifications of what appears to be unfolding.
Above I show my short term count from yesterday's 396.59 low. The most critical aspect of this count involves the move from 396.15 to today's 401.48 high. If this was a three wave move, it would imply much lower prices. If it was five waves, we could have seen a low today. As you can see, I have counted it as three waves. Due to the importance of this, I will provide the details of my count, and my reasoning. The move from the 396.59 low to Wave A seems to be straight forward. A single wave, supported by the 5D RSI. The move to Wave B again seems to be a single wave, once again supported by the 5D RSI. Wave C sub-divided into 5 smaller waves, as I have indicated. The count from Wave B is 396.95 - 399.16 - 398.63 - 400.62 - 399.97 - 401.48. That gives us (396.95, 399.16), (398.63, 400.62), (399.97, 401.48), with an R^2 value of .99308, completing a 5 wave sequence. Once again this supported by the 5D RSI. As you can see, the 5D RSI went from oversold at the 396.15 low to overbought at the Wave 1 high. Wave B saw the 5D RSI at oversold levels once again, and Wave C came with the 5D RSI at overbought levels.
Once again, this is the critical portion of the count. From Wave C, I have counted a 5 wave sequence down to today's 390.53 low. The first three waves came close to beginning of the wave. Starting from Wave 3, you can see an inverted corrective wave for Wave 4. This sequence went 399.41 - 401.08 - 398.15 - 399.30 - 394.28 - 394.92. Thus we have (399.41. 401.08), (398.15, 399.30), (394.28, 394.92), with an R^2 value of .99782.
We can then count the 5 wave sequence from today's high as 401.48 - 400.58 - 401.27 - 399.41 - 394.92 - 390.53, or (401.48, 400.58), (401.27, 399.41), (394.92, 390.53), with an R^2 value of .99385. This completes 5 waves from yesterday's 396.15 low. Using those 4 completed waves, we can now project the termination point of the fifth wave, Wave E. Because of the configuration of the first four waves, the fifth wave will need to complete below the fourth wave. The fifth wave given this scenario will need to complete below 379. In other words, this wave would need to trade below the 379 level, and then move up to complete below 379. Obviously this is an extremely bearish scenario. When that wave completes, it would likely complete Wave 4 from the 418.31 high. If this wave completes at 379, the lower range for Wave 5 would be 347. If the wave terminates below 379, that range would likely adjust downward.
Earlier I mentioned the importance of the move from yesterday's low to today's high. I will now illustrate that point. For arguments sake we will say that I am wrong in my count, and the move actually occurred in five waves. That would make today's high Wave 4 from the 418.31 high, and put us in Wave 5 from that point. Given the four completed waves the sequence would be 418.31 - 407.57 - 407.45 - 396.59 - 401.48 - X. if we use today's low for "X", we have (418.31, 407.57), (407.45, 396.59), (401.48, 390.53), which gives us an R^2 value of .999999. This means the sequence from 418.31 has likely completed. The lower limit for this scenario is 388, so a move below that would invalidate this scenario.
Given the current count, it appears SPY is headed below 379, and possibly down to new lows. This seems to be the majority opinion, which always sends up a red flag. However the count is pointing that way, so we will let it play out.
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