Wednesday's Market

Yesterday we said we had completed waves 1 and 2 from the 1359 low, and that we should see a move higher. With the earnings news from Apple, that was a no-brainer. The market opened much higher, hitting 1390.81 in the first half hour. From there the market consolidated, moving lower to 1385 just before 1:00pm. From there the market moved to 1390, pulled back, hit a new intra-day high at 1391.01, pulled back again, and then hit the high of the day at 1391.37. The market spent the last hour trading in a narrow range from that high, down to 1388.

By our count, the action from Tuesday’s 1375.57 high was an inverted corrective wave 2 which terminated Wednesday at 1384.78. From there the market completed waves, 3, 4, and 5 at 1391.01, 1386.30, and 1391.37 respectively. This completed the 5 wave sequence from 1359 slightly above 1388.13 as we discussed might be the case in yesterday’s update. This leaves intact our count from the 1357.38 low as wave 1 terminating at 1388, a semi-inverted corrective wave 2 ending at 1358.79, and now wave 3 terminating at 1391.37.

If this count is correct, we can expect a move lower from here, with the market most likely moving below 1385, and then moving back above, 1391.37. This would complete the 5 wave sequence from 1357, and pave the way for the move down from 1422 to finally continue. Should the market fail to move below 1385, the projected wave 5 high would be above 1422, perhaps signaling the correction is over. At the moment we would expect wave 4 to bottom back near the 1360 level, which would project a high slightly above today’s 1391.37. This would keep the action nicely within the current trading range, and satisfy our model.

The current move could possibly extend slightly higher, so we would need a move back above 1422 to invalidate this count.

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.