SPX 1400?

The Stock Market created another very interesting day. Within the first half hour it took out the 1374.76 short term high, indication another 5 wave up sequence was in the works, and the previous longer term high of 1378.04. As we discussed, breaking the 1374 level made it apparent we would take out the 1378 high. From there the market continued to gain strength, hitting 1384.75 before taking a short breather. After pulling back to 1381.23, the market charged ahead once again, first to 1393.41, and then a final push propelled the market to 1396.13. Having pulled back from that level only slightly, the market closed at 1395.95.

We revised the count for the correction from the 1374.76 high. It now appears the termination of that correction was 1366.69. With the market movement today, that would appear to be Wave 2 from the 1340 low. The next termination point at the moment would be in the 1397.27 – 1401.54 range. That would complete Wave 3 of the current move. From there a small pullback would set this up sequence to finish near 1420. That would complete Waves 4 and 5, of the current sequence, and Wave 4 on the daily chart. This scenario would keep us in our forecast range of 1394.91 – 1422.88 for the top from March 2009. Wave 5 would be down, with one final run higher to complete that top.

On a cautious note, the market now sits just above a range that would have completed a 5 wave sequence from the 1340 low, completing Wave 4. If the market falls below 1391 before reaching our 1397-1401 range it would most likely validate that count.

Monday's Market

The market trade in a narrow range today, after topping out at 1374.76 on Friday. Today’s action confirmed that mark as at least a near term high. Today continued the counter trend move from that high.

The movements over the last two trading sessions has been complex if not volatile, tracing out a series of 5 wave sequences. The majority of Friday’s session was spent completing Waves 1, and 2. Having completed Wave 2 near the end of the session, the market headed down once again with Wave 3. It took the remainder of that session, and all of Monday’s session to complete that wave. Wave 1 of Wave 3 was a seemingly minor move, but Wave 2 turned out to be an inverted corrective wave that took the market lower. After finishing Wave 2, Waves 3, 4, and 5 quickly followed suit, completing Wave 3 near the end of the session.

With Waves 4 and 5 remaining in this sequence, we can expect the market to move higher, perhaps to the 1373 level, before putting in a final low for this sequence. We look for that low to be around the 1362 level.

It is possible that Wave 2 is the inverted correction, ending at 1372.25. Wave 3 would then terminate at 1370.45, Wave 4 at 1372.29, and Wave 5 at 1370.25, completing the 5 wave move from 1374.76. This scenario falls just short of our criteria, but being a larger degree wave it would take precedence over the previous count count. If we take out the 1374.76 high, this would be the correct count, and we would be in another 5 wave move up, likely taking us above the 1378 recent high.

From there we will have to look at the market for direction. We believe 1374.76 completed Wave 4 on the daily chart, so we would look for a small rally before heading back down to test the 1340 low. If we break through that level, we would need to complete another 5 wave sequence that could take out the 1378 high before heading lower.

Wave 4 Top?

The current wave structure from the 1340 low has been difficult to decipher. It has been almost a straight-line move, void of any meaningful pullback. With the price action so closely packed, it is hard to discern one wave from another. Several of the wave terminations were in odd places, causing some measure of concern.

It now seems possible, even probable, that Wave 2 was an inverted corrective wave. This creates a much more cohesive looking wave. Friday’s 1374.76 high would now seem the likely termination point of this wave, likely Wave 4. If it is, we should now head back down to test the 1340 lows. A move above 1374.76 remains the level that would signal another move up.