1400 One More Time?

It turned out to be quite an interesting day for the market. The small dip we anticipated at the open never materialized, and although we expected another move higher, the move turned out to be stronger than we envisioned.

The market opened higher, rising above the 1380 level we said would lead to a continuation of the correction from 1357. After moving above 1380, the market paused and dropped back to 1377. It is now apparent that wave4 of the correction from 1357 occurred at 1369.41, shortly before yesterday’s close. The slight rise from there, and then the dip into became wave 1 of the next move higher, and wave 1 of an inverted corrective wave that result in the sharp rise at Tuesday’s open. Although a bit unorthodox, normally wave 4 of an inverted corrective wave would carry beyond wave 2, this wave terminated at 1377.

When the market hit 1384, it completed 5 wave sequences from the 1369 low, and the 1365 low. A short move to 1382 followed, in what would turn out to be another inverted corrective wave from 1384. This wave carried above that level, indicating yet another move higher. This corrective wave took the market to a high of 1391, before completing at 1390. Having finished wave 2 of this sequence, the market then continued higher, completing the 5 wave sequence at 1393.

We believe this to be the completion of wave 3 from the 1357 low, which would indicate we have at least one more move higher to complete the sequence. It would appear that a drop to 1389 would complete a 5 wave sequence from 1393, which we believe would be the end of wave 4 from 1357. One more move to right around 1400 would complete the 5 wave sequence from 1357, and be the point from which we will once again move lower.

Our view that the market made a major top at 1422 and that we are in a corrective sequence from that level remains unchanged.

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.