Last Week's Market

On Thursday the SPX completed Wave 5 of a move from the 1392 low, and then moved above it, indicating another 5 wave sequence up. On Friday that analysis was confirmed with a strong opening. When the SPX hit 1409, it completed Wave 3. From there the market turned down, spent the next hour working on Wave 4, which terminated at 1401. From there the market turned higher once again, spending most of the remainder of the day forming a detailed Wave 5. This wave made stops at 1409, 1407, 1410, 1409, and finally at 1410.89, which completed that wave. The market then turned lower into the close, hitting a low of 1406.86, before moving up slightly to close at 1408.47.

We do not discern a 5 wave sequence from the 1410.89 high, therefore we would expect the market to open lower on Monday. From there will be watching that 1411 level, a  move above that signaling another 5 wave sequence to the upside would be in order. Our belief at the moment is that 1410.89 is the high of a correction from the 1392 low. We now expect the market to work its way lower, now in a wave 3 from the 1419 high. That would be confirmed with a move below the 1387 low.

Longer term we still view 1419 as the high from 667. We are looking for a major 5 wave sequence to form from there.

Thursday's Market

At Wednesday’s close, the SPX stood at 1405.54, right in the midst of what we identified as the termination range of a semi-inverted corrective wave from the 1398.2 low. That turned out to be the correct analysis of the wave structure, as the market opened, dropping to 1397 in the first few minutes of trading. Within the first half hour, the index hit 1394.5, completing Wave 3 from the 1419 high. A short rebound to 1398, and a final drop to 1391.56 completed Waves 4, and 5 of that sequence.

With a completed 5 wave sequence from 1419, the market was now in a position to rally. The first move was to 1394, and after dropping back to 1392, it quickly rose again to 1396. After hitting 1396, the market spent the next hour in a narrow trading range, finally finding its way down to 1393.66. From there the market rallied again, forming a 5 wave sequence from 1393 up to 1402.80. This completed a 5 wave sequence from the 1391 low, and interestingly enough marked almost exactly a 38.2% retracement of the drop from 1419. However, instead of ending the rally there, the SPX dropped to 1400, and then extended the rally through the final hour of trading. This extension of the rally was very interesting, as it also completed another 5 wave sequence from 1391, 1404.61, before fading to close at 1403.28.

Since we have completed a 5 wave sequence from the 1391 low, we can expect the market to head down once again. Should we surpass the 1404 high, we would need to form another sequence from that low. Longer term we are keeping an eye on 1419, and 1387. A breakout from either point should give an indication of the next move. At this point we still expect the market to move lower, with 1419 the termination point of a 5 wave sequence from 667. Only if we move above 1419 would that outlook change.

Another Move Down?

As of Tuesday’s close, we said the market had completed a 5 wave sequence from the 1419 high at 1412, with a rebound expected. If that rebound failed to carry above 1419, and then broke through 1412, we could expect another sequence to the downside.

Wednesday the market opened slightly lower, actually moving wave 5 within our model threshold, falling to 1411.65. From there the market tried to stage a rebound, rising to 1413.65. The rebound was short lived, and the SPX quickly fell back below 1412. That was our signal that the market was headed lower, and head lower it did. By 11:00AM the market had fallen to 1406, and by noon had fallen below 1400, hitting 1398 before trying to move higher. The index made it back above 1400, to 1402, before dropping once again, hitting the low of the day by 2:30PM at 1397.20. At that point the buyers took over, pushing the SPX back to 1405.67. The index dipped slightly into the close, finishing at 1405.54.

With the initial low of the day at 1411.65, the market completed Wave 1. The small rebound from there became Wave 2, with the drop to 1406 forming Wave 3. The move up to 1408, followed by the another move down to 1398, formed Waves 4, and 5, completing a 5 wave sequence from 1419.

From 1398 the market rose to 1402 in a 5 wave sequence, and followed that up with a 5 wave sequence terminating at 1397. Moving back below a wave 5 low usually signals another move down, but once the market surpassed 1402, it became clear the market was in the process of forming a semi-inverted corrective wave. Our target for this wave would be 1404-1406.5, exactly where we closed today. Should the SPX rise above our upper bound of 1406.5, our analysis of an inverted corrective wave in progress would most likely be wrong, and we could expect the rebound from 1397 to continue. A drop below 1401 would confirm our analysis, and we can expect another move lower, with another 5 wave sequence needing to be completed.