The week started on a positive note, as SPY opened higher on Monday, getting as high as 503.50 during the morning. It gave up those gains during the afternoon, dropping near the 500 level before closing slightly below Friday's close. A disappointing CPI report sent the market lower on Tuesday, breaking through the 500 level, and back down to the 490 level. The remainder of the week was spent recovering from that drop, with SPY getting back above 500 on Thursday and Friday, but closing the week just below that level at 499.51.
We are currently focusing on the wave sequence from the October 2022 low of 348.11. Wave 1 of that sequence was choppy, but was completed as a 5 wave sequence a 5 up to 418.31 in early February 2023. Wave 2 was an inverted corrective wave that lasted most of 2023, terminating at 409.21 in October. After an initial move lower to complete Wave A, Wave B was the most productive segment of the wave, lifting SPY above 450. Waves C, D, and E carried SPY back near the 400 level in a corrective fashion. The strong rally through the end of the year we currently see as Wave 3 of the sequence, with the weakness that started this year being Wave 4. That currently puts us in Wave 5 from the 348.11 low. The minimum target for this wave to complete would be 517. The upper end of the target would be 556. We can use the shorter term waves to try to narrow the range as we get closer. Although the range at first seems large, it serves several purposes. First, it gives us an accurate working target to watch. It also gives us precise levels that will alert us to possible changes in the wave structure. In this case, should the current shorter term wave complete under 517, it would suggest that Wave 3 may not have completed in late December, and may still be underway. Similarly, if the current shorter term wave carries above 556, we could assume the same.
Many times, the first two waves of a structure will give us a target for the end point of a wave. Applying this method to the first two waves of this sequence, 478.12, and 469.87, gives us a minimum target of 530, well within our longer term wave target of 517 - 556. The first five waves of this sequence do not meet our criteria for a completed 5 wave sequence, so we can assume an inverted corrective wave is forming. If that inverted corrective wave was forming from the first wave top, waves 2, 4, and 6 above should form a completed wave, which they do not. We can therefore assume that the inverted corrective wave is now forming from the wave 3 top.
That means our current 60 Minute Chart would look like this. It shows 3 waves from the Wave 4 low, with a possible inverted corrective wave forming. Last week we gad targeted the 504 level late in the week as a possible resistance level. SPY hit 502.87 before turning lower. This wave has not yet been confirmed on the Hourly Chart, but if that level does hold, it would become Wave D of the inverted corrective wave, with a target for Wave E at 490 - 491. This would complete Wave 4 from the Wave 4 low, with a Wave 5 target above 530.
As you can see, the Wave E target is extremely narrow. Often times this is an indication that it can easily be broken. There is a short term sequence that would account for a somewhat lower level, down to 480. Given the current construction of all the discussed wave structures combined, 477 would seem to be the lower limit of this wave.
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