Friday's Market

The market opened sharply higher on Friday, rising to 1384 before running into any resistance. It appears waves 1, 2, and 3 of a 5 wave sequence were completed on Thursday, with Friday’s opening surge the result of an inverted wave 4. This wave terminated at 1381, allowing wave 5 to carry the market to 1387.

From there the market dropped slightly to 1385, before trying to rally once again. This attempt fell short of the 1387 high, and the market turned lower, gaining downward momentum through the afternoon. A 5 wave sequence from 1387 was completed at 1380, and after rising a few points, quickly fell below 1380, starting another sequence down. It appears to us that another 5 wave sequence from 1387 was completed at 1378, which sets the stage for a rally on Monday.

1378 most likely marks the end of a corrective sequence from 1387, and completes wave 2 from the 1370 low. We still view this as wave 5 from the 1357 low. This should carry us to 1396, at which point we can resume the downward move from 1422.

We would expect the current wave to hit 1391, 1385, and then 1396 to complete this sequence. 1370 is the level to watch on the downside, with a move below that signaling the continuation from 1422 is underway.

Thursday's Market

Well, if nothing else, today’s action was a bit easier to follow than yesterdays, and we believe it also clarified some of the wave action. It now appears that Wednesday’s wave action consisted mostly of an inverted corrective wave, and most of a wave 3. The 1390 high made in the last hour on Wednesday we would now consider the termination of an inverted corrective wave from Tuesday afternoon’s 1390 low. While the termination points we discussed yesterday remain the same, their relationship within the current wave structure has changed.

Yesterday we said we were closing at a wave 5 termination point from the 1390 high made earlier that afternoon. Today the market opened lower, than rose slightly before falling to 1382. This formed another 5 wave sequence from that 1390 high, and also took out the 1383 level we had pointed to as an important support level. We believe the 1382 was wave 3 of a sequence. From there the market staged a rally, rising to 1388, before heading towards new lows, which it made at 1379. From this 5 wave sequence low, the market staged one more pretty impressive rally, rising to 1390. From there it was downhill all the way, as the market rapidly fell to new intraday lows, finally bottoming out at 1370. This completed another 5 wave sequence from 1393, and wave 4 from the 1357 low. We still believe we need to make one more high in this sequence, which we now project to be at 1395. That should complete the 5 wave sequence from 1357, and set the stage for another move lower.

At the end of Thursday’s session, the market completed a 5 wave sequence up, in what we would consider to be the first move to 1395. The critical area to watch on the downside would be the 1365 low. Should we take out that low, it would appear the current corrective phase is over, and we will be headed back to the downside.

Wednesday's Market

It turned out to be quite an interesting day for the market, which created some very complex wave structures. Starting out to the downside, as expected since the market had not completed a wave sequence from Tuesday’s 1393 high, gapping down and hitting the day’s low at 1383 in the first several minutes. This did complete the 5 wave sequence from 1393.

From there the market traded in a tighter range, in what appears to be the formation of another 5 wave sequence from the 1393 high. Several of today’s waves looked a little odd, but seem to be correct based on the wave counts of the more minor waves, and the expected behavior from the 1357 low.

From Wednesday’s initial low of 1383, the market rallied, completing a 5 wave sequence at 1389.80. This was followed by another move down, bringing the market back down near the 1383 low. A second 5 wave sequence to the upside then unfolded, carrying the market back to 1388. After hitting that level the market turned lower for a third time, a five wave sequence which featured an inverted corrective wave 2, and once again the market found itself at the 1383 level. We believe this completed the second 5 wave sequence from the 1393 high.

From there the market showed some strength, rallying back to 1390, where it terminated a 5 wave sequence. However, from there the market gave up most of those gains going into the close, falling back to 1385.

At 1385 the SPX completed a 5 wave sequence, which we believe to be a wave 2 of a sequence from 1383. From here we expect the market to rise back up to 1400, where it would complete the 5 waves from the 1357 low. From there the market may turn lower once again.

As we said at the beginning, several of these waves appear to be not typical. We believe we are interpreting them correctly, but we would view a break of the 1383 level to signal another move to the downside. If we hold 1383, we should be on our way to 1400.