Monday's Market

We got the stronger opening we expected, with the market moving up to 1380 in the first few minutes of trading. We warned this rally might be short-lived, and that turned out to be the case. From 1380 the market turned sharply lower, breaking through Friday’s 1370 low, and continuing down until it completed a 5 wave sequence at 1365.38.

From that low, the market spent the middle of the day in a corrective mode, working its way back higher, but not surpassing the earlier 1380 high. The market completed the first phase of the correction at 1371. From there it completed a 5 wave sequence down to 1366.48. Another rally followed, the market completing a 5 wave sequence at 1371 once again, then continuing on until it completed another 5 waves from 1366 at 1376. We believe this to be the third wave a 5 wave correction from 1365.

The remainder of the day was spent moving back down, working on wave 4 of that sequence. In this wave the market dropped to 1369 before moving slightly higher into the close.

It does not appear that we have quite completed wave 4, therefore we expect a slightly lower opening on Tuesday, looking for a wave 4 termination point between 1367 and 1369. From there we look for the market to move higher, as we have yet to complete wave 5 from the 1365 low. We would expect wave 5 to carry the market back to the 1378 level.

Longer term we believe we have completed waves 1 and 2 from the 1388 high, and waves 1 and 2 from 1422. We still anticipate the market moving lower, with our current target remaining at 1330. Should we move above the 1380 high, we would expect the market to continue higher, most likely moving above the 1388 high and completing another 5 wave sequence from the 1357 low. We don’t believe this would carry us above the 1422 high.

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.