Last week we identified a major top having occurred. After an initial drop from the highs, the markets once again found themselves in a narrow trading range. However, recent wave counts indicate that a more precipitous drop is imminent.
Having failed thus far to form a simple 5 wave correction pattern from Wednesday’s lows, the market has instead remained in a consolidation pattern. This pattern appears to be playing out as a series of nested waves, 5 wave sequences resulting in lower highs, and higher lows. This pattern generally results in a fairly substantial move in the direction of the main trend, which in this case is to the downside.
In this consolidation pattern we have a confirmed 5 wave sequence from the low of 1363.81 on the SPX, to a high of 1376.17. We have also confirmed 5 wave series for the ensuing downside move to 1366.42, and the final move up to 1372.10. We would call all of these termination points of 5 wave sequences, and label them as wave 1s of declining degrees. In order to complete the sequence started at last week’s market high, all wave sequences must be completed. Some of these sequences will be inverted waves, resulting in a substantial move to the downside.