Tuesday's Market

Sorry I haven’t updated here for a couple of days, my paying job was interfering with my fun job.

As of our last update, we believed we had started a major corrective wave from the 1422 high. It appears that Monday’s steep drop following the disappointing jobs report last Friday completed a 5 wave sequence from that high. 1404.62, 1392.92, and 1378.24 would be lows of that sequence; with 1378 being hit in the first half hour of Monday’s trading session. From there the market moved higher during the day, reaching 1387 before heading lower into the close. The move to 1387 had stops at 1383, 1382, 1386, and 1384 before reaching 1387, which formed a 5 wave sequence, with a model value of .9919, and pointed to another move lower.

That move came Tuesday, with the market opening lower, and continuing lower throughout the day. From 1387, the SPX completed a 5 wave sequence down to 1375, and then rallied slightly to 1376. Another drop to 1366, an uptick to 1367, and a final drop to 1357.38 formed a 5 wave sequence from 1387 with a model value of .9947.

The market then moved higher into the close, but we don’t think we have quite formed a 5 wave sequence from 1357. Given the current data, a move higher to 1364-1365 would complete that sequence.

Tuesday’s move below 1378 now means the market needs to complete a 5 wave sequence from 1422. 1378 now becomes wave 1 on that sequence. The rebound to 1387 would either be wave 2, or wave 1 of an inverted corrective sequence from 1378. The wave action over the next couple of days should give us the answer. If this ends up being a simple 5 wave sequence, with wave 3 at 1357, and wave 4 at 1364-1365, we would anticipate wave 5 to carry down to 1348-1339. Should this be a more complicated wave structure, we could move even lower.

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.