Weekend Outlook 07/29/12

It was another very interesting week for the markets. I had been expecting the market to begin the week to the upside, working its way towards my 1393 target. Instead, it sold off rather sharply at the outset, dropping to 1329.24 by Tuesday afternoon. This kept the market above the previous low of 1325.41, and the market started to rally off that low. The rally continued on Wednesday, and kicked into high gear on Thursday with a gap to the upside. The market worked higher the remainder of Thursday, and then carried the rally into Friday. By Friday afternoon, the SPX had reached 1389.19, a rally of nearly 60 points from Tuesday’s low.

This week’s rally took the market to the 1387-1397 cluster of resistance, and within 4 points of my target for wave 3 from 1267. Last week I outlined my favored scenario in which we started the week in wave 4 from 1309.27, of wave 3 from 1267. Tuesday’s 1329 low marked the termination point of wave 4, and then the market completed a 5 wave sequence at the week’s high of 1389.19. This appears to be the end of wave 5, and thus wave 3 from 1267.

I continue to see this as a bull market from the March 2009 low of 666.79. The market formed a 5 wave sequence from that low to 1422.38. I see this sequence as 1219.80-1010.91-1370.58-1074.77-1422.38. This then became wave 1 of another sequence. Wave 2 was the recent correction to 1266.74. I have two possible projections for wave 3 of this sequence, 1426, and 1497.

Wave 3 of this sequence is unfolding now, with at least two, and possibly 3 waves having been completed. Wave 1 completed at 1335.52. Wave 2 was a complex semi-inverted corrective wave which terminated at the 1309.27 low. Wave 1 of this third wave completed at 1320.29, and was followed by a complex inverted corrective wave which took the market to a high of 1374.81, before terminating at 1325.41. Wave 3 reached 1380.39, with wave 4 completing with Tuesday’s low of 1329.24. With the completion of the 5 wave sequence on Friday at 1389.19 the market has most likely completed wave 5, and wave 3 from 1266.74.

 There is still the possibility that the market will move slightly higher before actually completing this wave. If it does, it should remain within the cluster of resistance at 1387-1397. For the moment, I will assume the wave has completed, and discuss what we might see next from the market. This next move higher should take the market to either 1426, or 1497. At the moment, 1497 seems the more likely. The extent of this corrective wave should give us the answer. A correction that terminates between current levels, and 1368, would point to 1497 as the next target. If the correction moves lower, between 1350, and 1330, 1426 would be my target.

Support is at 1382-1385, 1376, and 1352. Resistance is at 1387-1397, and 1426.