Wednesday's Market

Once again the market gapped down at the open, rallied into the afternoon, then faded into the close. Today’s opening move down took the SPX to 1348, part of an inverted corrective wave 2, which terminated with the rebound to 1353. From there the market completed waves 3, 4, and 5, taking the SPX to the low of the day at 1343. This completed a 5 wave sequence from 1366, and the market quickly rebounded in what would become a quite extended 5 wave corrective sequence. Initially this brought the market back to 1351 before a slight pullback. The next leg of this wave brought the SPX back near 1360, nearly erasing the earlier losses. After pulling back to 1352, the market moved ahead for wave 5, reaching 1363.73, and completing what we believe was the corrective sequence from the day’s 1343 low. The market then turned lower, dropping first to 1358, and then 1355. After climbing back near 1360 towards the close, the market fell back once again to 1354.

Earlier today we posted an update identifying 1343 as the termination of a 5 wave sequence from 1366, and said we would look for a bounce from here. At 10:45AM on StockTwits, (http://stocktwits.com/5wavemodel), we said we were looking the bounce to terminate between 1362 and 1364. The wave completed at 1363.73. So far this market has behaved pretty much as anticipated, and we have been able to identify each turning point as they have occurred. I point this out not to pat myself on the back, or toot my own horn, but simply to demonstrate the robustness of the model. The market makes a fool of everyone eventually, and I am sure it will make a fool of me soon. But that, too, will be due to interpretation, and not the model.

With that said, although the market completed a 5 wave sequence from 1366, it has not yet satisfied our model for a 5 wave sequence from 1374, nor from 1415. Today’s move to 1343, then, should be wave 1 of a 5 wave sequence itself. We continue to target the 1331-1325 level as the eventual low from 1415.

It would be nice if the market simply plummeted to 1331, and then 1325, but the reality is that the wave structures can become quite complicated. For that reason, at this point, we will keep an eye on certain levels for clarity.

Today’s action should be waves 1 and 2 of the sequence from 1266. We see the market going lower from here, but a move above 1364 would mean this count is wrong, and we could be headed higher.

We also believe we are in wave 5 from the 1415 high. While this wave structure seems pretty clear, there is a possibility of some alternate counts. None of these counts would satisfy the parameters of our model, but they come close. Should the market surpass 1374, one of these counts may be in play, and we could see a rally.

We continue to think our current count is the best, but markets such as these can see sharp moves, and we think it best to proceed cautiously. We still see lower prices ahead, as the sequences from 1415, and 1422, have yet to be completed.  

Wednesday Update

From our perspective, the market completed an inverted corrective wave from 1363, and then a 5 wave sequence from 1365.74, which terminated at 1343.13. This, in our opinion is wave 1 of a 5 wave sequence from 1365.74, which will eventually carry us down to SPX 1325. We would expect a bounce off, 1343, then a drop to 1331, and after one more bounce, a final drop to 1325. This would complete a 5 wave sequence from 1415, and wave 3 from 1422. We would expect a more significant rally at that point.

Tuesday's Market

Another interesting day, with the market opening sharply lower, which continued the move down from yesterday’s 1374 high. That opening drop completed a 5 wave sequence from that high, but that would prove to be but wave 1 of a larger 5 wave sequence. After completing the sequence the market moved slightly higher, rising to 1363, before continuing down. This move saw the SPX drop first to 1352, where wave 3 terminated, and finally to 1347.75, completing the 5 wave sequence.

Here the market found some buyers, and they quickly drove the market back to 1355. After falling to 1350, the buyers stepped in again and carried the market higher for the rest of the day. At 1359 we believe wave 3 of this corrective wave was completed, and after a brief pullback the SPX powered ahead to 1366. We believe this completed the 5 wave corrective sequence from 1348. The market pulled back slightly from that level, but remained fairly steady into the close.

We believe the move from 1374 to today’s low of 1348 represented wave 1 of a yet to be completed 5 wave sequence. We still do not see a completed 5 wave sequence from 1415, and believe this sequence will terminate when we have completed the sequence from 1374. While the rally off today’s low was a bit more than expected, it kept our current wave count intact, and played out in well defined 5 wave sequences. Only a rally above 1374 would invalidate the current count, with a move above that level pointing to a more extended rally at the minimum.

Our current outlook is that we are about to, or have just, started wave 3, of wave 5, of wave 3, from the 1422 high. We expect the SPX to complete wave 3 from 1422 somewhere below 1331. With the wave structure today, it is possible that it will be significantly below that level. From there we expect a wave 4 rally, and then a final low to complete wave 5 from 1422. Only then can we think about making new highs.

We will caution again that our waves can take many different forms, and we can only be certain of that form when a wave sequence has terminated. We are offering here our best interpretation of the wave structure given the available data.