Thursday's Market 02/27/2014

The SPX opened slightly to the downside today, but quickly recovered and moved above yesterdays close to 1847.04. This completed a 5 wave sequence following the completion of the semi-inverted corrective wave yesterday afternoon. From there the index again pulled back, falling to 1841.13. After that the SPX embarked on a more sustained rally, completing a 5 wave sequence to the upside at 1854.53. Another pullback, this time to 1849.93 was followed by three waves to the upside as 1853.51-1850.19-1854.13.

Putting today’s action together with the completed waves from 1840.19 reveals that a 5 wave sequence from that low may have completed at today’s 1854.13 close. From that low, Wave 1 completed at 1847.60. A quite complex semi-inverted corrective wave, which I have been describing the past two days, then completed a second wave yesterday at 1840.91. This wave appears to have been Wave A of a continuing Wave 2. Wave B was completed with the opening move higher, and was followed by the drop to 1841.13 which completed Wave C.  The extended rally through the afternoon to 1854.53 completed Wave D, with the pullback to 1849.93 Wave E, and finally Wave 2 from 1840.19. The three quick waves into the close then may have completed Waves 3, 4, and 5.

This count would indicate that a pullback from here is likely. Until the SPX breaks below 1840.19 it is possible for the index to move higher, but with a 5 wave sequence from that low, it appears likely that the next move will be lower. It is also possible that the SPX is still in Wave3 from 1840.19. The upper boundary for the 5 waves completed scenario is only slightly above today’s close, so any move to the upside at the open would suggest this is the case. I would still be looking for a move above 1858.71 to confirm a move higher is underway.

Wednesday's Market 02/26/2014

The SPX moved higher at the open today after completing the semi-inverted corrective wave at 1842.43 yesterday. That seems to have been only Wave A of a larger degree semi-inverted corrective wave. That wave completed today at 1842.43-1849.23-1843.47-1844.7-1840.91. That would indicate that at least the short term bias is to the upside. This may still be only part of a corrective wave from the 1840.19 low. If this move carries above 1858.71 the SPX is likely to move higher. A break below 1840.19, would likely been this correction has further to go, but I would still look for a break of 1835.60 to totally confirm this.

Tuesday's Market 02/25/2014

The last two days have been interesting in terms of wave structure. From Monday’s 1858.71 high, the SPX dropped to 1854.69. After an inverted corrective Wave 2, the index opened lower this morning to complete Wave 3 at 1847.66. After a small bounce to 1849.94 for Wave 4, Wave 5 completed at 1843.49. The SPX was not finished moving to the downside however, as the index want on to complete a larger degree wave as 1843.49-1845.34-1840.79-1842.42-1840.19. Waves of this structure often reverse sharply after moving beyond Wave 4, which in this case was 1842.42. This was no exception, as the SPX climbed to 1847.60 once clearing that level.

After pulling back to 1843.56 the SPX continued higher, this time reaching 1852.91. The index then went into an extended pullback throughout the remainder of the day. The SPX first formed a 5 wave sequence that completed at 1845.24, and then formed an inverted corrective wave then terminated at 1845.15. From there, the index made another small move lower to 1842.43.

Looking at the wave formation from the 1840.19, the SPX formed three waves to the upside, 1847.60-1843.56-1852.91. With the subsequent move below the second wave low of 1843.56, the move from 1852.91 to 1842.43, this could be interpreted as the beginning of an inverted corrective wave, which would indicate lower prices to come. But taking into consideration the fact that the 5 wave sequence lower from 1852.91, and the inverted corrective wave that followed both completed between 1847.60 and 1843.56, the first two waves from the 1840.19 low, it opened the door to another interpretation, namely the formation of a semi-inverted corrective wave. When the small drop from 1845.15 to 1842.43 completed within my model’s parameters, this was confirmed.

Generally these formations are followed by a very sharp move in the direction of Wave 1, which in this case is up. If this interpretation is correct, I would expect the SPX to move slightly above 1855, undergo a shallow pullback, and then continue higher.

If the SPX moves below 1842.43, this interpretation is wrong, and the index should move to new short term lows. A move above 1858.71 would confirm this scenario.