Will We See a Monday Bounce?

After Thursday’s close we stated that we had completed a 5 wave corrective sequence from the 1357 low, and that we were now expecting another move to the downside starting on Friday. The market did sell off at the open, quickly moving down to 1383. From the 1388.13 high on Thursday, wave 1 was the drop to 1387. The market then formed an inverted corrective wave that started on Thursday, and then carried over to Friday’s market. This inverted corrective wave ended at 1383, and from there the market moved lower once again. When the SPX hit 1380.12, a 5 wave sequence from the 1388 high was completed.

After a quick run up to 1383, the market turned lower again, breaking through the 1380 level and signaling another 5 wave sequence to the downside. The market finally found some support at 1373, and that marked the termination of wave 3 from the 1388 high. The market then spent the next several hours in a corrective sequence, finally topping out at 1379.

From there, the market moved lower once more, hitting 1375, finding some short term support, and then breaking through the previous low of 1373. The market continued lower into the close, hitting a low of 1369.85, before closing just above that level.

From the 1379 high, the market appears to have formed 4 waves, and is currently in the fifth. It is also just tenths of a point above a level that would complete a 5 wave sequence from 1388. We could see a small bounce on Monday, but we believe this would only be a temporary pause to the downside move. This would appear to be a wave 1 of another 5 wave sequence down from the 1422 high. We continue to believe that the market will work lower, to at least the low 1300’s.

Thursday's Market

We were looking for a slightly lower opening on Thursday, with a price of 1365-1363 completing a 5 wave corrective sequence from Wednesday’s 1375 high. From there we expected a move higher, with a move above 1375 signaling another 5 wave sequence up.

The lower opening never materialized, with the market moving higher at the opening. The low of 1367 was slightly higher than expected, but appears to be the termination point of that corrective sequence. The market did break through 1375, and another sequence was underway. The market paused momentarily at 1378, completing Wave 3 from the 1357 low. The wave sequence from that point was a 5 wave inverted corrective Wave 4. A slight drop to 1376 was followed by another short term high at 1383, and then rose again to 1387, after falling to 1382. One final small dip to 1384 completed the Wave 4 inverted correction. From there the market completed a 5 wave sequence terminating at 1388.13, which also completed a 5 wave sequence from 1357.

This 1388 high took out the 1387 Wave 2 high, which means 1357 was the termination of a 5 wave sequence from 1422 as we discussed yesterday.

Having now completed a 5 wave corrective sequence from that 1357 low, we can now look for the market to move lower once again. We are still looking for this move from 1422 to carry us into the low 1300’s, and perhaps lower. 1388 is now the level we are watching that would indicate the market will still move higher.

Wednesday's Market

On Tuesday we said we did not think we had completed a 5 wave sequence from the 1357 low. We were looking for a continuation of that corrective sequence heading into Wednesday’s open, with a move to 1364-1365 completing that move.

Instead of the move terminating at 1365, the market headed straight up to 1373. From that low the SPX rose to 1361before turning back down. This would turn out to be a wave 1of a corrective wave sequence. The move back down to 1358 was then a wave 1 of an inverted corrective wave sequence from 1361 that would carry over to Wednesday’s trading session. The rise to 1362, and fall to 1369 on Tuesday became waves 2, and 3 of that sequence. The opening on Wednesday was wave 4, and this carried the market to the 1373 opening move. The short drop from there to 1370 completed the 5 wave inverted corrective wave sequence with a model value of .9997.

Having completed the corrective sequence, and thus wave 2 of the move from 1357, the market once again was poised to move higher. First it rose to 1373, fell back a point, and then made a final move to 1375. This completed a 5 wave sequence from 1357.

From 1375 the market began to erode, completing a 5 wave sequence at 1370 with a model value of .9934, and another 5 wave sequence from 1375, terminating at 1368.33. This sequence was 1375, 1370, 1372, 1369, 1370, and 1368. This sequence yielded a model value of .9963.

From 1368 the market tried to move higher once again, but completed a 5 wave sequence below the previous high, topping out at 1373.  From there it was mostly lower into the close, completing a 5 wave sequence from 1373 at 1367 in the last hour, and then moved slightly below that mark in the final few minutes.

We do not see the completion from the 1375 high; therefore we would look for the market to move lower, at least at the opening, on Thursday. The way the wave structure stands, a move down to 1365-1363 would complete that 5 wave sequence. From there we will be looking for a move above 1375, which would indicate the move up has further to go, or a break below the 1365-1363 low.

To recap, we believe wave 3 of a 5 wave sequence from 1422 was completed on Tuesday at 1357. The action since then would be wave 4 of that move, which may have terminated at 1375. A move above 1375 would mean the corrective sequence higher would continue, and we are looking for a short term low around 1365, and then a break of that to signal a continuation of the downtrend.

There is a count that would make the 1357 low the termination point of a 5 wave sequence from the 1422 high, which would possibly indicate that this move up could last a little longer. That count cannot be confirmed on the daily charts, se we’ll maintain our current count, but a move above 1387 would confirm 1357 as a wave 5 low. Keep in mind we still expect the move lower from 1422 to continue. We do not think we have seen an end to that move yet.