Tuesday's Market

From Monday’s 1359 low, we identified a 5 wave sequence terminating at 1368, and stated a move above that level would signal another sequence to the upside. Within the first few minutes of trading we were through that level, initialing hitting 1370, and after a small pullback, the market moved to 1371.

That level marked the end of another 5 wave sequence from the 1359 low, but the market was not done yet. After correcting to 1369, the SPX gathered steam and surged to 1375. The ensuing corrective wave was choppy, but the market eventually continued higher, hitting 1375.57, and completing another 5 wave sequence from 1359.

From that high, the market turned lower, spending most of the afternoon giving back almost all of the day’s gains. By the time the 5 wave sequence from 1375 was over, the market had fallen back to 1368.

The market moved higher towards the close, completing a 5 wave sequence at 1373, before dropping to 1371 into the close.

From here we looking at first the 1372.65 level to signal a move higher, and if we move above 1375.57, we could be looking at another run back towards 1400. We mentioned yesterday that it was interesting that the market held above the 1357 low, and that could mean that the corrective wave from that level was not yet over. The wave structure of this correction has been puzzling, with the market forming three identifiable waves from that level, but we could not identify a 5 wave structure. It now appears that the drop to 1359 may have been wave 5 of a semi inverted corrective wave from 1388. Should this turn out to be the case, we could expect first a 5 wave sequence carrying above 1388 for wave 3, a corrective wave 4, and then one more sequence higher to complete wave 5 of the corrective sequence from 1357. Should we break through 1357, we would assume the corrective sequence was over, and the move down from 1422 would continue.

We still believe that 1422 will hold for awhile, and that we still have a ways to go to the downside, but that may have to wait for the moment.

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.