Looking Ahead

On Friday the market completed a 5 wave sequence from the 1388 high. We are looking for a slightly higher opening for Monday, perhaps to the 1373 level. From there we would expect the market to move lower, below the 1369.85 low, and start a new sequence.

This sequence should see the SPX move down to 1358, rebound a point or two, and then continue down to 1348. This would fit nicely with the projection from the 1422, which calls for a move to 1343, followed by a rise to 1355, and a final low around 1330.

We do not see the move higher on Monday to be a tradable rally, but rather a point to take advantage of another move lower.

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.