Tuesday's Market

We were expecting the market to move lower today, with Monday’s 1406 high marking the termination of a 5 wave sequence from 1357. Instead we got the complete opposite, with the market moving decidedly higher.

The SPX rose back to near 1400 in the opening minutes of trading, and then started moving lower. At 1396 it abruptly reversed course, and rose virtually uninterrupted until it reached 1415 at midday. That turned out to be the high of the day, moving steadily lower, closing near the move’s low of 1405.25.

This move appeared to have some conviction to it, but we have seen that same conviction, in both directions, ever since that 1357 low. One day the market seems almost certain to breakout in one direction or another, but ultimately failing to do so. This time things may be different of course, but we are not willing to join the bullish camp just yet. The market acted today like it wanted to break out to new highs, and some of our scenarios account for that, but until we actually break into new ground, our current scenario remains intact.

With our current count from 1357, 1415 still falls within our target range for wave 5. We would now label the 5 wave sequence from 1384.78 as, 1384.78-1393.32, 1393.32-1390.12, 1390.12-1404.64, 1404.64-1394.00, and 1394.00-1415.32. Wave 4 appears to have been a semi-inverted corrective wave. This sequence yields a model value of .9945.

The count from 1357.38 would be 1357.38-1388.13, 1388.13-1358.79, 1358.79-1390.81, 1390.81-1384.78, and 1384.78-1415.32, which yields a model value of .9981. This also fits our projections for waves 1 and 2 from the 1422 high. Given this, we still believe we can make new lows, even with Tuesday’s action.

Should we move to new high ground, a scenario involving an inverted, or semi-inverted corrective wave would come into play. Having completed a 5 wave sequence from 1422, and three 5 wave sequences from 1378(1340, 1422, and 1357), both of those scenarios are possible.

In the near term, we expect the market to move lower, possibly down to 1394, before moving back up to 1405. After that we will be watching breaks of the 1385, and 1357 levels to signal moves lower. Should we move above 1415, the market bias would be to the upside, possibly moving to much higher levels.

The Beginning of Wave 3 Down?

The market spent most of last week to the upside after putting in a low at 1359 last Monday. Hitting the 1406 level on Friday put us within range of completing of a 5 wave sequence from that low, with a possibility of moving slightly higher before heading once again to the downside.

On Monday the direction was decidedly down, moving quickly to 1395. At that point the market attempted to rally, moving back near the 1400 level, before turning down once more, this time dropping to 1394. From there the market found some support, moving higher, back to 1398, as it neared the close. In the last few minutes of trading the market dipped to 1396.59, then rose to 1397.80 into the close.

It would seem today’s action confirms 1406 as the termination of the 5 wave sequence from the 1359 low. Last Friday’s drop to 1403 we consider to be wave 1 from that high, with the rise to 1405 wave 1 of an inverted corrective wave. Monday’s opening drop was part of wave 2, with the inverted corrective wave terminating at 1398.13. We expect the market to continue to the downside on Tuesday, with waves 3, 4, and 5 yet to be completed. This should be the continuation of the correction from 1422, and we will consider it as such. At this point a move back above 1406 would indicate another move higher. Levels to watch on the downside are 1385, 1359, and 1357. Breaks of these levels would be short term bearish.

Once again, we believe 1422 marks the high from 667, with a correction to 1388 being wave 1 of wave 2. From 1388 the SPX created an inverted corrective wave that terminated at 1359. The moves to 1391, 1385, and finally 1406 completed waves 3, 4, and 5, and wave 2 from 1422. We should now be moving back down for wave 3.

Friday's Market

On Friday, the market opened higher, and quickly rose to 1405. That rise was followed by a sell-off, pushing the market down to 1397. We believe this was the termination of a semi-inverted corrective wave from Thursday’s 1402 high. After falling to 1397, the market recovered, steadily rising to 1403, falling back a point, and then resuming the move higher to 1407. The market faded once again into the close, falling to 1402.43.

Friday’s action continued the rise from the 1385 low, completing wave 4, and waves 1, 2, 3, and 4 of 5 from that point. We think the market can make one more move slightly higher, to 1308-1311, before completing wave 5 of 5. That should complete the 5 wave sequence from 1357, and perhaps resuming the move from 1422.

We still believe we can move lower, continuing to target the low 1300 level from the 1422 high. Should we move above 1422, we think the market could move higher, with our target the 1460 level.