Weekend Outlook 06/17/12

Earlier this year, as the market approached 1400, I started calling for a top in the market between 1378, and 1422. When the market reached 1422.38, it completed a 5 wave sequence from the March 2009 low of 666.79. Wave 1 of this sequence terminated at 1219.80 and Wave 2 at 1010.91. Waves 3, 4, and 5 terminated at 1370.58, 1074.77, and 1422.38, respectively. Once this sequence was completed, it could either be considered Wave 1 of a larger degree wave that would eventually carry the SPX back above 1422, or wave 2 from the 1576.09 2007 high. At the moment I favor the wave 1 scenario, with a move above 1422 expected, but it is possible that this 5 wave sequence will complete below 1576, and itself will be wave 2 from that high. By analyzing the wave structure from 667 to 1422, two projections for wave 3 of the next sequence can be calculated, one at 1426, and the other at 1497.

The 5 wave sequence from 1422, which I consider Wave 2 from 667, proved to be a bit more complicated. First, a 5 wave sequence unfolded from 1422 to 1291.98. That point became wave 1 of a second sequence which took the market down to 1266.74. In my opinion this completed Wave 2 from 667, with 1422 as Wave 1.

This means that the market is now in Wave 3 from 667, which should terminate at either 1426, or 1497. From 1267, a 5 wave sequence completed with the market reaching 1335.52. This is wave 1 of 3, with the 5 wave sequence from that high, to 1306.62, becoming wave2. From this, my model projects wave 3 to carry the market to 1393.

The SPX, thus far, has completed waves 1, and 2 of a 5 wave sequence from 1306. The market first formed a 5 wave sequence to 1327.28 for wave 1, and then a corrective 5 wave sequence to 1310.51 for wave 2. Wave 3 of this sequence projects to 1367.

In turn, the market has now completed 3 waves, and possibly 4, from that 1310.51 low. Wave 1 was a 5 wave sequence to 1327.44. Wave 1 of this sequence was followed by an inverted corrective wave 2, followed rapidly by waves 3, 4, and 5, at 1327. A corrective 5 wave sequence down to 1320.76 was wave 2. At this point I projected wave 3 to terminate at 1343-1344. Wave 1 from 1321 was rather small, once again followed by an inverted corrective wave 2. Waves 3 and 4 followed, with a rather meandering, elongated, wave 5 completing the sequence at 1343.32.

With wave 3 completed, wave 4 may have been the very minor pullback from the 1343 high. If you look at the 5 wave sequence from 1267, to 1335, you will see that wave 4 in that case was a very minor pullback. Wave 5 of this sequence should carry us to 1367.

We could still see a more extensive pullback for this wave 4, with 1321 being the limit for this scenario. The more likely scenario, however, is a quick run-up to 1367, followed by a more significant corrective, before the market turns higher again on its move to 1393.

Thank you for your interest.