Monday's Market

The market opened sharply lower today, in what appears to be the continuation of the correction from 1422. Within the first hour the SPX hit 1358.90, completing a 5 wave sequence from 1387. From that low the market spent the rest of the day trying to regain its losses, beginning with an initial rise to 1363.

By 1:00PM, the market had rallied to 1376. This completed a 5 wave sequence from the day’s low, meaning the market would head lower once again. It did, dropping to 1362, but holding above the low of the day. Another rally ensued, making it first to 1367, and then after a small move down, to 1368. This completed another 5 wave sequence from the day’s low of 1359. The market dipped heading into the close, dropping back to 1366, before rallying back close to the day’s high right before the close.

As we said, today’s drop to 1359 completed a 5 wave sequence from 1387, and also completed a sequence from 1393. It appears that this will be the continuation of the move down from 1422, of which this would be wave 3. A move below 1357.38 would confirm this, and probably mean some more sharp moves to the downside. A move back above 1368.26 would mean another 5 wave sequence still needs to unfold from the 1359 low from today.

Interestingly, the market held just slightly above its previous 1357.38 low, leaving open the possibility that the correction from that level is not yet over.

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.