Tuesday's Market 04/30.2013

The SPX traded on both sides of unchanged at the open, coming off yesterday’s strong move to the upside. Soon the market moved lower, dropping to 1586.50. At that point the rally once again took hold, with the SPX rising to 1592. After some choppy upside movement, the SPX rose to 1596.78 before pulling back. This pullback held at 1593.56, and the market mode one more move higher, to an all-time high of 1597.38.

After the opening pullback to 1586.50, the SPX appears to have risen to a wave 1 at 1592, followed by a corrective wave 2 sequence. Wave 3 occurred at 1596.78, followed by wave 4 at 1593.56, and wave 5 at 1597.38. This sequence may have completed a 5 Wave sequence from 1536.03, which may signal the long awaited end of Wave D. This sequence can be seen as 1536.03-1592.64-1577.56-1596.65-1586.50-1597.38.

With the market action of today, it seems that the SPX is still in, or has just completed Wave D from 1292.66. The other scenarios I mentioned yesterday would seem to be lower probabilities at this point. I am not ready to declare Wave D over. This market has risen in spite of itself, and may continue to do so. I can however make some statements about what I am looking for.

First, if Wave D is to continue, it will have to do so via a complex corrective wave. This would be similar to what we saw between Friday afternoon, and Monday morning; a small dip, followed by a sharp move to clear the 1598-1602 resistance area, and then choppier trading completing the complex corrective wave, and the next 5 wave sequence. I see 1590 as the first support level, so that seems like a logical limit to the pullback.

It is more probable that Wave D ended at 1597.38, with Wave E expected to follow. Since Wave D has now exceeded Wave B, I would expect Wave E to be less than the 61 point decline we saw for Wave C. This wave should end somewhere between 1582, and 1536, with a target of 1573.

Thank you.

Monday's Market 04/29/2013

Apparently the market did not like my suggestion of 1566 for the next price level. It seems I was correct about the length of the next move, just a bit off on the direction.

The market gapped up at the open again today, hitting 1588 before pulling back. The move above Friday afternoon’s high signaled an inverted corrective wave was in progress, and that is what occurred. After the pullback the SPX rose again to 1592, pulled back, moved higher to 1595, pulled back, and then hit the high of the day at 1596.65. The market then fell into the close.

The SPX completed a 5 Wave sequence from 1577.56 at today’s high, which now gives us three sequences completed from the 1536.03 low, 1536.03-1592.64-1577.56-1596.65. This, I believe, puts the market in a precarious position. My current count has the current wave from 1536 as Wave D of an inverted corrective wave from 1292.66 October 2011 high. After this wave terminates, I would expect one more move lower before the market continues higher. If this count is correct, a move to 1598 would complete the sequence from 1536, and possibly be the start of Wave E to the downside. Since Wave D would complete beyond Wave C, I would expect Wave E to be less than the 61 point move from 1597 to 1536.

There are a number of possibilities if the market moves up to 1598-1602 and then moves lower. All of these would indicate a move lower, so I will not go into all the details. If the SPX breaks above 1602, it would appear the market will see higher prices before Wave E begins.

The real problem, as I see it, is if the market moves below 1577.56 without making a new high. This would most likely mean that Waves C, D, and E complete at 1536, with the current 3 waves from that low being Waves 3, 4, and 5 from 1074. Looking at it another way, it would mean the entire wave sequence from that point would be complete, and should now be followed minimally by Waves C, D, and E  from May 2011 1370.58 high. Waves 3, 4, and 5 would then complete an entire sequence from 666.79.

This would mean a larger correction than the less than 61 point move in the first scenario, but still most likely within expectations. There is one possible count however, that would indicate the start of a major correction from today’s high.

I will not get too far ahead of myself, so I will take this one step at a time. For now, a move to 1598, followed by a pullback would probably indicate a minor, less than 61 point correction. A move above 1602 and we should see higher prices before the current wave completes. A move below 1577, without making a new high, would most likely mean a larger correction is underway.

Thank you.

Friday's Market 04/26/2013

The market opened flat today, meandered lower, and then rallied to 1586. When that rally fizzled, the SPX continued the move lower from the 1592 high. The SPX completed a 5 Wave sequence from that high at 1579.62, and then continued lower, completing a larger degree sequence from that high at 1577.56. At that point the market staged a pretty good rally, rising to 1585.68, where it completed a sequence from the short term low, and then moved lower into the close.

The 1592.64 high marked the termination point of a 5 Wave sequence off the 1536.03 low. From that point, the SPX has now completed a sequence to the downside, followed by a sequence higher. It is still unclear as to whether this is the start of the next move lower, which take out the 1536 low, or a corrective wave indicating another move above 1597. Short term, I think the next move is lower, with a target of 1566. I will provide a more detailed update over the weekend.

Thank you.

Thursday's Market 04/25/2013

In yesterday’s post I said a 5 Wave sequence from 1563.03 could complete something like 1587-1585-1591. Today it did complete as 1586.33-1585.55-1590.47. But the market was not quite done, as it then also completed a sequence from the 1536.03 low.

It was another gap up opening for the market, with the SPX reaching 1585 earl on. The market then pulled back to 1581 before continuing the move higher. And move higher it did, hitting 1586.33, pulling back slightly to 1585.55, and then reaching 1590.47. After dipping less than three points, the SPX kept rising until it hit 1592.64. A sell-off took hold from there, with the SPX falling to 1583 before moving slightly higher into the close.

The initial move today completed a 5 Wave sequence from 1563.03. As I mentioned a couple of days ago, it was then possible that a complex corrective wave would form from the 1579.58 high. The SPX did just that, completing that corrective wave at 1587.85 (1579.58-1563.03-1590.47-1588.77-1590.21-1587.85). Following that a sequence completed from the 1536.03 low as 1536.03-1579.58-1587.85-1591.76-1590.89-1592.64.The sell-off to 1583.23 then completed a sequence from that high, right at a support level indicated by the previous wave.

With a 5 Wave sequence completed from the 1536.03, the question is now whether the market will resume the downtrend from 1597. If this is not the end of the current move, we are likely very close to the end. At the moment I will remain neutral as to the direction of the next move, but will be looking for a specific scenario that would indicate the end of this move.

The next resistance level is 1595-1598. If the SPX moves into that level, pulls back, and then makes another higher high, it would complete another sequence from 1536 as a rising wedge. A breakout from that wedge would indicate the next move to the downside is underway.

As mentioned, the next resistance is 1595-1598, with the next support level at 1566.

Thank you.

Wednesday's Market 04/24/2013

After the wild swings in the market yesterday, today’s action was somewhat muted.  The SPX traded in a narrow range, in a series of higher highs, and lower lows. The action of the market today would seem to confirm my analysis from yesterday.

After falling at the open, the SPX quickly reversed and rose slightly above yesterday’s close to 1581.34, which was near my 1580 resistance level. The market pulled back after that, falling back to 1575.80. The SPX then turned higher once again, rising to 1583.00. One more pullback towards the close took the SPX down to 1577.90.

Yesterday I said the market completed a 5 Wave sequence from 1536.03 at 1579.78. I said I thought the market was still heading higher, and labeled that high as Wave 1, and the sharp drop from that high Wave 2. Wave 1of 3 to 1578.55 was next, and was followed by a 5 Wave sequence to the downside, which could have been Wave 2 of 3. I then said it was quite possible that the market would form a complex corrective wave from either the 1578.55, or 1579.78, high.

It would appear that the market did exactly that, forming a 5 Wave sequence from 1578.55 as 1578.55-1573.13-1581.34-1575.80-1583.00-1577.90. This would be an inverted corrective wave, and would complete Wave 2 of 3. I would now expect another move higher, as the SPX needs to complete Waves 3, 4, and 5 of 3. As I said yesterday, I would expect this next move to carry to 1591, perhaps as 1577.90-1587-1585-1591.

There is a negative divergence on the 60 Minute chart, with the SPX coming off very overbought levels. However, the small decline into the close took the Hourly RSI into neutral territory, while a positive divergence appeared on the 3 Minute chart, and the 15 Minute chart showed oversold levels. This could set up a move higher.

Often, after a sharp move as we saw from 1536 to 1579, the market can make several higher highs to form a 5 Wave sequence resembling a wedge. When this happens, it usually means a sharp move in the opposite direction. We can see that set-up here, as three separate highs can be counted from both the 1536.03, and 1563.03 lows. From 1536 we have the sequence 1536.03-1579.58-1573.13-1581.34-1575.80-1583.00. This has an R^2 value of only .8134, well below my model’s threshold. From 1563 we can see the sequence 1563.03-1578.55-1573.13-1581.34-1575.80-1583.00. This has an even lower R^2 value of .9685, still well below the threshold. For these reasons I would discount both of these scenarios.

It appears the SPX has now completed two waves from the 1536 low, and two waves from the 1563 low. I expect the market to next move to 1591, via 1577.90-1587-1585-1591. This scenario will hold true unless the SPX falls below 1576.90. In my view, even a breach of this level would simply mean a further correction from either the 1578.55 or 1579.78 high, as I still believe Wave D has further to go on the upside before the next move down.

Thank you.

Tuesday's Market 04/23/2013

It was quite an interesting day for the market today. With the SPX having completed a 5 Wave sequence from the 1536.03 low, I thought it was a likely point for the market to resume its downtrend. I could not have been more wrong.

The market moved higher from the opening bell, blowing past the 1567, and 1572 resistance levels I mentioned yesterday. By midday, the SPX had hit my 1579 resistance level, topping out at 1579.58. The market started to pull back from that point, and then a flash crash sent the SPX down to 1563.03. Within minutes the market had recovered, before pulling back to 1573.13. The market then rallied into the close, falling just short of the 1579.58 intra-day high.

From yesterday afternoon’s 1565.55 high, the market formed an inverted corrective wave that carried over to this morning. This sequence was 1565.55-1562.90-1564.52-1561.56-1575.16-1572.46 (.9994). This completed Wave 2 from 1536.03, and the sequence then completed as 1577.40-1575.80-1579.58 (.9952).

The SPX pulled back from that high, and formed a 5 Wave sequence, 1579.58-1578.97-1579.36-1577.09-1578.08-1563.03 (.9992) that included the flash crash. 1563.03 also formed a relationship with the 1536.03 low, the Wave D high from this morning’s inverted corrective wave, and the 1579.58 high. If we look at (1536.03, 1563.03), (1563.03, 1575.16), and (1575.16, 1579.58), we find a correlation of .9978. Following the recovery from the flash crash to 1578.55, the SPX then formed a 5 Wave sequence to the downside, 1578.55-1575.90-1577.85-1575.11-1575.80-1573.13, .9989. This was followed by a 5 Wave sequence higher, 1573.13-1575.02-1575.87-1578.14-1576.97-1579.16, .9981 that included an inverted corrective Wave 2, 1575.02-1574.08-1576.74-1575.75-1576.87-1575.87, .99999.

I am still of the opinion that the SPX is in Wave D of an inverted corrective wave from 1292.66. The difficult part of this wave has been calling the top, and thus the start of Wave E down. I brought up the possibility of this wave moving beyond the 1597.35 high before that wave begins. This scenario is becoming increasingly likely.

The wave from 1536.03 to 1579.78 contained no overlapping waves by my model’s count. This generally means a continuation of that move. After today’s drop to 1563.03, the SPX formed two 5 Wave sequences to the upside, without completing a sequence from 1563.03, or 1536.03. This again implies another move to the upside. It is likely that the SPX is forming a complex corrective wave from either 1579.78, or 1578.50, so the exact structure is in doubt. A likely point of resistance would be 1592. This would be the 3^rd wave from 1536.03, meaning at least one more move after that.

If the SPX falls below 1573.13, this count would be in doubt, and a move below 1563.03 would most likely mean the next move down is upon us. Support is at 1574-1576, with resistance at 1580, and 1591. If the SPX moves above 1579.58, 1592 would be the likely next stop.

Thank you.

Monday's Market 04/22/2013

The market moved higher at the open today, climbing to 1560.10, which was near the 1561 resistance level I had mentioned, before falling back. The market quickly fell to 1549.19 before recovering. Recover it did, as the SPX moved slightly above the 1560.10 high at 1560.18. After a short pullback, the market continued higher, to 1565.55, before moving lower into the close.

I continue to see this as Wave D from the 1292.66 high, and still expect to see one more move lower to complete Wave E. This will complete the 5 Wave sequence, and the market should move higher from that point.

If the market is to move lower, this would seem to be the perfect time. The market has completed a 5 Wave sequence from the 1536.03 low, and should now start the final move down for this sequence.

Near term resistance is at 1567, 1572, and 1579. Support should be at 1551, and 1542. My target for Wave D would be between 1504, and 1459.

Thank you.

Weekend Outlook 04/20/2013

Since the SPX hit an all-time high a week ago Thursday, the market has been in corrective mode. Monday the market fell sharply, with the SPX finding itself nearly 45 points off its high. On Tuesday the market tried to recover, but Wednesday and Thursday were once again to the downside, with the SPX finding itself down over 60 points from the 1597.35 high. The market tried to rally again on Friday, and by the close the SPX had risen nearly 20 points off the low.

I have re-worked my charts, and labeling system to hopefully be more user-friendly. I have decided to use the more conventional numbers for impulse waves, and letters for corrective waves. I have also tried to be more consistent with the colors across time frames.  I hope this will make it easier to follow.

In my opinion, the market completed a 5 Wave sequence from the March 2009 low of 666.79 in May of 2011 at 1370.58. Wave 1 of this sequence completed at 930.17, and was followed by a semi-inverted Wave 2. For those familiar with Elliot Wave Theory, what I term a “semi-inverted corrective wave”, can be thought of as an expanded flat pattern. Wave B in this pattern completes beyond the beginning of Wave A, and Wave E finishes beyond the end of Wave A. Waves C and D in my model finish within Wave A. Wave3 then took the market to 1219.80, with a simple Wave 4 to 1010.91 following. The sequence then completed at 1370.58 with Wave 5. Creating points with the sequence 666.79-930.17-869.32-1219.80-1010.91-1370.58, gives us (666.79, 930.17), (869.32, 1219.80), and (1010.91, 1370.58). These points have a correlation of .9939. This relationship between Waves 1, 3, and 5 is the basis of my model.

From that high of 1370.58, the market corrected to 1074.77. This turned out to be Wave A of an inverted corrective Wave 2. Again turning to EWT for an analogy, inverted corrective waves would be similar to extended waves. Wave B finishes beyond the start of Wave A, and Wave E does not terminate beyond the end of Wave A. Waves C, D, and E can finish in one of two ways with this structure. It can either end in a zig-zag type pattern, or a pattern similar in appearance to a running flat, with Wave D finishing beyond Wave B, and Wave E not moving beyond the end of Wave C.

This inverted corrective wave turned out to be only the beginning of a series of these waves, or a nested inverted corrective wave structure. This structure would eventually create 5 Wave 1’s, and involve ten wave degrees. The market is now in the process of completing this structure, with Waves B, C, D, and E forming to complete Wave 2 of the next higher degree, followed by Waves 3, 4, and 5 to complete the next Wave B, and so on. The SPX at this point has four wave degrees left to complete.

The recent high of 1597.35 completed Wave B from 1292.66. The majority of this week was spent completing Waves 1-5 of Wave C, which appears to have ended at 1536.03. Friday’s rally may also have completed Wave D of this sequence, meaning one more move down to complete Wave E.

Assuming that Wave C completed at 1536.03, it seems that there are two possibilities as to have this wave will complete. Going back to my earlier description of inverted corrective waves, they can complete in one of two ways. The first is in the form of a zig-zag from Wave B. This resolution is common in nested wave structure. Therefore I would expect a small correction from the Wave C low, followed by another move to the downside. If Friday’s move was the corrective move, the market would be poised to move lower from this point. If Friday’s high of 1555.89 turns out to be Wave D, my target for Wave E would be between 1495 and 1448. If this structure does end in a zig-zag type fashion, I would expect Wave E to be longer than Wave C. 1597.35-1536.03=61.32. 1555.89-6132=1494.57. This gives the upper bound of my range. 1448 is the lowest price at which my model would be satisfied given the already completed wave structure.

The second possibility is the more intriguing. As mentioned earlier, the second way an inverted corrective wave can resolve, is to have Waves C, D, and E to complete with the look of a running flat. In this scenario, with Wave C completed, I would expect Wave D to carry above the start of Wave C, which would be 1597.35. Wave E would then complete above the end of Wave C, which is 1536.03. If the market moves above 1555.89, the possibility of this scenario would increase. 1561 would be the next resistance level, and then 1579 beyond that.

Thank you.

Friday's Market 04/19/2013

In yesterday’s post I said I would be looking for a continuation of the rally off the 1536.03 low, with a target of 1561. After an opening dip to 1539.40, the market moved higher, topping at 1555.89.

From the opening dip, the market turned higher, reaching 1547.68, and then falling back to 1541.91. Another move to the upside carried the SPX to 1549.63, but was followed by a quick move back to 1545.86. After that the market was able to sustain a longer rally to 1554.87. The market followed that by giving back half of that gain, before rising into the close, and hitting a high of 1555.89.

The rally from the 1536.03 low, to yesterday afternoon’s 1544.01 high, completed a 5 Wave sequence. 1544.01 then became Wave 1 of a larger degree sequence that was completed at 1549.63, at the end of the choppy trading that marked the start of the session. The subsequent drop to 1545.86 formed Wave 2, and was followed by the more sustained rally into the midday hour, which completed Wave 3. The market then pulled back to 1549.48, and completed Wave 4. Wave 5 then completed near the close of trading at 1555.89.

I had been expecting a move to 1561 off Thursday’s low, and the market fell short of that mark today. With a 5 Wave sequence now completed off the 1536.03 low, it is likely that this upside move is over, and that the market will resume its move to the downside. If 1555.89 was the high of this move, it would lower my targets for the downside move to between 1495, and 1448.

I will elaborate on this over the weekend.

Thank you.

Thursday's Market 04/18/2013

In yesterday’s post I said the SPX had completed three 5 Wave sequences from 1597.35, 1552.58-1575.35-1543.69, and possibly a fourth sequence at 1555.15. I said that if the market moved down to 1535, it would complete a 5 Wave sequence from the high, and that I would then expect a rally. Late this afternoon the SPX hit a low of 1536.03.

The market opened slightly higher this morning, but did not exceed yesterday’s high. Soon the market continued to the downside, falling to 1541.40. The SPX then rallied to 1552, and then spent most of the remainder of the day trading within that range. By mid-afternoon the market started heading lower again, hitting the 1536.03 low, before rallying towards the close.

It does appear that Wave 4 from 1597.35 did complete yesterday afternoon at 1555.15. The market from there completed a 5 Wave sequence into today’s low, 1555.15-1541.40-1552.17-1539.46-1542.37-1536.03. This sequence terminated within the range target for Wave 5 from 1597. Therefore it is most likely that a sequence has completed at this point, and a rally should come next. A likely target for this correction should be around 1561. From there I would expect another move down near 1500.

Thank you.

Wednesday's Market 04/17/2013

It has been fairly apparent that my count from SPX 1358 has not been correct. I had been counting the move from 1563.62 to 1538.57 as the completion of Waves 3, 4, and 5 from 1370.58. I was then expecting Waves 3, 4, and 5 higher to complete the sequence from 666.79.

From 1538.57 I counted three waves up to 1573.66 (1538.57-1564.91-1546.22-1573.66), three waves down to 1540.29 (1573.66-1549.80-1562.60-1540.29, three waves up (1540.29-1573.89-1567.97-1597.35). All of these three wave sequences, without completing a 5 Wave sequence, is quite unexpected. The action from 1563.62 has been more reminiscent of the unwinding of inverted corrective waves. It is now my opinion that the move from the 1074.77 low has contained many more nested waves than I originally thought. Waves 1, 2, 3, and 4 as labeled in pink on my Daily and Weekly chart now appear to be a series of nested ones. The current move lower from the 1597.35 high should be waves 3, 4, and 5 from 1292.66 (Pink Wave 1). Once this sequence has completed, the market would need to move higher to complete the sequence from 1074.77. This would be followed by a correction to complete the inverted corrective sequence from 1370.58, and another move higher to complete the sequence from 666.79.

Today the market gapped lower, falling to 1558 before attempting a rally. That attempt did not last long, as the SPX worked its way lower, finally settling at 1543.69. At that point the market did move higher, rising to 1555 before settling back into the close.

The SPX completed a 5 Wave sequence from 1575.38 at 1546.08, which became Wave 1 of a larger degree sequence. After a move higher to 1551.93, the market fell to 1543.69, to complete this higher degree sequence. The market then moved higher, and completed a 4 Wave sequence at 1555.15.

From 1597.35 the market has completed three 5 Wave sequences, 1597.35-1552.58-1575.35-1543.69. There are several possibilities at this point. If the market moves lower at the open, a drop to 1535 would complete a 5 Wave sequence from 1597.35. I would then expect a move higher, followed by one more move lower. If the market continues to rally off today’s low, I would expect it not to exceed 1575, and be followed by another move lower to 1530-1485. If the market moves below 1530 at the open, the SPX should bottom above 1485, with that being the low from 1597.35, and the beginning of the next rally.

Thank you.