Tuesday's Market 05/29/2012

We missed very badly on our call from Friday, completing misinterpreting the wave from 1324 to 1314. The wave was complicated, but the 5 wave sequence was there, we just missed it. For that we apologize.

We were right in saying that a move above the 1324-1328 level would signal a new 5 wave sequence to the upside, as the SPX hit 1334.93 after clearing that level. Once hitting that level, the market pulled back, quite sharply and deeply in our opinion, before moving back up to 1333. While we were expecting that if we cleared 1324-1328, we would make a quick move to much higher levels, the sell-off from 1333 seemed a bit more than one would expect, with the subsequent rally back up rather subdued and choppy in comparison. Earlier it looked like an inverted corrective wave was forming, which would fit with the expectation of much higher levels being reached. It now appears something completely different took place, which may not foretell higher prices, at least not at the moment.

Last week we said we saw a 5 wave sequences from 1291 to 1328, 1328 to 1300, 1300 to 1324, 1324 to 1310, and 1310 to 1324. We further stated that these 5 waves came within .01 of a point of meeting our threshold for a complete 5 wave sequence from 1291. With the move from 1324 back to 1314 unfolding in what we now say is a 5 wave sequence, this would be wave 2 of a sequence from 1291. The spike today, as we see it, unfolded in three waves, 1314 to 1330, 1330 to 1327, and 1327 to 1335. This completed another 5 wave sequence from 1291.

The pullback today unfolded in 5 waves, as did the rally back to 1333. This could turn into another series of slightly higher waves, similar to what happened today. The danger, as we see it, is that we experienced a false breakout today, and the market will soon revert to moving to the downside.

On the bullish side, we have completed a 5 wave sequence down from 1335, which did hit a corrective support level at 1323-1324. So we could still be headed higher.

 A break above 1335 would signal another move to upside, with the next resistance level around 1340. If we clear that, the rally everyone has been expecting will be underway. If we start off to the downside, 1327 looks like the support zone for a correction from 1333. If that doesn’t hold, a move below 1323 would most likely signal the market is headed back down, possibly to test the recent lows.