Order of records - finding preceding and next records

I have looked around a few forums for a similar question but I'm not really even sure what to search for!

I have a table with some events, client names, timestamps for the event, and a category.  There are four steps in a cycle.

CREATE TABLE #events (EventID INT IDENTITY(1, 1),
				  Client VARCHAR(10),
				  RecordTimestamp DATETIME,
				  Step TINYINT)

INSERT INTO #events (Client,
				 RecordTimestamp,
				 Step)
VALUES ('Client A', '01-01-2014', 1),
	  ('Client A', '01-02-2014', 2),
	  ('Client A', '01-03-2014', 3),
	  ('Client A', '01-04-2014', 4),
	  ('Client A', '01-05-2014', 1),
	  ('Client A', '01-06-2014', 2),
	  ('Client B', '01-04-2014', 1),
	  ('Client B', '01-06-2014', 2)

SELECT *
  FROM #events
  ORDER BY RecordTimestamp, Client

So let's assume that step 2 cannot start for a given client until step 1 completes, category 3 can't start until 2 completes, etc.  If today is 1/7/2014 we could say that Client A has completed one full cycle (steps 1-4), Client A is half way through cycle 2, and Client B is half way through its first cycle.

I'm trying to identify all cycles that are in progress, meaning a step 1, 2, or 3 is present without a step 4 record (by client).  A query on the data above would return step 2 of Client A and Client B, both on 1/6.  I no longer care about the first cycle from Client A because another cycle has started.

The table columns can be changed if necessary.  Can someone at least push me in the right direction?  It may involve a CTE and/or cursor, but I'm just not sure where to start.

Thanks!