Hello Carl & all,
Rather interesting market action, no? What led to the dramatic drop on Thursday & Friday was the fact that wave 1 up, which began Thursday 4/16 @ 11:50pm (overnight session)at 1105.10 on the June S&P, completed itself in a "Wedge Top" formation on Wednesday. After wave 1 topped at 2:34pm Wednesday @ 1140, the lower rising wedge line was violated on the downside before the close of trading on Wednesday, leaving an extremely bearish outlook for Thurs. & Fri. Prices tend to drop dramatically when a Wedge top formation is activated.
One really good example of this was last year in late June, when the dow fell about 190 points in one day (then the second largest pt. decline ever in one day). The news assigned to the drop was the Japanese central banker threatening to sell U.S. bonds and buy gold. Of course, the market rebounded hard from the fall in the following days, as I'm convinced it will now... why?
I believe this Thurs. & Fri. were the completion of the A portion of this 2nd wave down. (Please refer back to post 16971 to see the larger perspective). From Wednesday's high at 2:40pm @ 1140, we have seen a clear 5 wave progression lower (A is always comprised of 5 waves). Wave 1 completed at 10:20am Thurs. @ 1129.30. Wave 2 completed at 11:54am Thurs. @ 1134.90. Wave 3 completed at 9:30am Fri. @ 1124.10. Wave 4 completed @ 10:38am Fri. @ 1129. And Wave 5 got real ugly and doubled its expected down move, finishing at 3:16pm @ 1110.70.
A small "wedge bottom" formed from 2pm through 3pm Friday, and with the move back up through 1111, this formation was activated. Thus, I feel confident the A wave has indeed completed, and the upward move to as high as 1115.70 late Friday from the lows of 1109.50 was the initial part of the B wave rally we'll see continue on Monday. The activation of the wedge bottom provides a target of 1120 for this B wave rally. If this area is exceeded, I would expect the rally to continue to the 1125.20 area, which would be a 50% retracement from the 1140 beginning point of A to the 1110.70 end point. If the 1125.20 area is exceeded, then the 62.5% retracement would probably stop the B rally from gaining more ground.
Once the B wave rally ends, the C wave decline will begin, to complete this 2nd wave down. Because A lasted from 2:34pm Wednesday to 3:16pm on Friday (2 full trading days), theory holds (and proves to be very reliable, as it was in the last forecast for a 7.2 day C wave based on the 7.2 day A wave) that C will also be 2 days in duration, give or take an hour or two. Because Wave 1 began at 1105.10 last Thursday a week ago, one would expect this area to provide substantial support to the subsequent C wave decline. Often, these 2nd wave corrections will slightly drop through the starting point of a Wave one rally, to clear all stops of the longs, and bring in new shorts, before reversing higher to begin wave 3.
So I intend to be looking for the C wave to be wrapping up in the 1100 to 1105 area on the June S&P (just subtract 6.5 if you're following SPX Cash) on Wednesday of this week, with a powerful 3rd wave rally launching from that area. If for some reason the contract decisively takes out 1100 on the downside, then a different scenario would have to be considered that would open the door for a severe break that would first target 1087, then the 1057 area. The 2 day theory may still prove valid even if this were to happen, which I view as unlikely at the moment.
Good luck, and let me know if this sounds way out of whack.
Regards,
David |
