Wednesday's Market

We were looking for a lower open, having closed on Tuesday at a wave 5 termination point, and we got one. The market gapped down at the open, and continued down in the first couple of minutes to the 1400 level, before finding some temporary support. After rising several points to 1403, the market moved to new lows for the day. At 1394 a 5 wave sequence from 1422 and a corrective sequence was in order.

The SPX completed the first wave of this sequence just shy of 1399, and then headed south once again. A new intra-day low at 1394.09 formed wave 2, the move to a new low indicating an inverted, or semi-inverted corrective wave was in progress. A bounce to 1398 and the subsequent drop to 1396 were waves 3 and four of the sequence. Rallying once again into the close, the market topped at 1401.39, then fading to close at 1398.96.

We believe the final rally was the fifth wave of the semi-inverted corrective sequence from the 1394.33 low. This would indicate another down move on Thursday, which would most likely be wave 3 of the move down from 1422. We are still anticipating a move below the 1391 level, which would confirm the current downtrend. Interestingly, the bottom of this move is almost identical to the bottoms at 1391, and 1387. In both cases we thought we had formed a semi-inverted corrective wave from those bottoms, and in both cases we were wrong. We believe we are correct in the current count, but given the circumstances will proceed with caution. A move above 1401 would mean the corrective wave has not yet been completed, but we still believe this to be a corrective wave.

Tuesday's Market

After hitting a high if 1422.38 Monday afternoon, the market pulled back towards the close. Monday’s action from that high turned out to be wave 1 at 1417.43, and wave 2 at 1419.18. Tuesday’s open was a continuation of that sequence, with the market dropping to 1414.98 before a slight rally back up to 1418.34. Again the market fell, this time reaching 1414.18. This completed a 5 wave sequence from the 1422.38 high with a model value of .9983.

From there the market tried to rally, hitting 1418.74 before turning down once again. When the market fell through the 1414 level, a new 5 wave sequence to the downside was confirmed. This time the market hit 1410.27 before finding some support. A short-lived rally ensued, pushing the market back to 1414.13 before dropping once more, this time to the day’s low of 1404.62. This completed Wave 5, giving a model value of .9986.

From this point the market moved higher into the close, completing a 5 wave sequence at with stops at 1406, 1405, 1408, 1407, and finally at 1411.13. This sequence yielded a model value of .9950.  A pullback to 1407.71 formed the second wave of another sequence higher, confirmed when the market moved above the previous high of 1411.13, reaching 1412 and a fraction. A very slight pullback below 1412 and one final move up to 1413.38 completed this sequence, this time with a model value of .9997.

Having completed a 5 wave sequence from the low of 1404.62 could make this a wave 2 of another sequence lower from the 1422.38 high. A move above 1413 would mean a move to higher levels.

1404.62 is the first level to watch for another possible move to lower levels. The next level to watch would be the 1392 low. A move below that could signal we have finally broken out of this topping formation.

If we move above 1413, the next level to watch is of course the 1422 high. Should we break convincingly above that level, it could mean a breakout to the upside. At this point we still believe the odds favor a move lower from here.

Monday's Market

On Friday the market was up, completing a 5 wave sequence from the 1392 low late in the day at 1411, and then fading into the close. We said a 5 wave sequence down from that high had not been completed, and we expected the market to move lower at the open on Monday. From there we were watching for a break above 1411 as a signal of another 5 wave sequence higher. The market did open lower today, hitting 1404.46, and completing the 5 wave sequence from 1411. From there the market moved higher, breaking above 1411, and continuing up from there. A 5 wave sequence from 1392 was completed at 1420 and continuing higher still, completing another 5 wave sequence at 1422.38, the high of the day. From there the market fell to 1417, before rising and closing at 1419.04

While the market broke into new higher ground, our feeling that we are still experiencing a market top remains intact. We are still within our target range of 1378-1422 for that top, and the market has not been convincing in moving higher since it hit 1378.We are now, however at the top of that range, and a break above the 1422 would most likely signal a move higher from here. At the moment we will stand by our call of a market top, and look for a move lower from these levels.