Tuesday's Market 04/09/2013

It turned out to be quite an interesting day. I have been talking about this “semi-inverted corrective wave” scenario since this weekend, and the market seems to be playing out that scenario thus far. The market also gave us a perfect example of a semi-inverted corrective wave today, which I will try to describe in detail. This may make my scenario from 1538.57 easier to understand.

The market opened higher today, hitting 1566.51. After that, the market turned lower, dropping to 1560.92. The market then turned higher, rising to 1565.99, once again hitting that 1565 resistance level that has proved so stubborn. That level held once again, dropping the SPX to 1561.38, before it once again moved higher. The market soon ran into that 1565 level for the third time, but this time it wouldn't hold. After a slight pullback, the market finally broke through that level, and it was up, up, and away. The market quickly ran up to 1573.89, with only small pullbacks along the way. Yesterday I mentioned the 1572 as a likely stopping point, and that level was pretty much on target. The market then fell on cue, falling to 1567.97 near the close.

The up and down movement at the start of trading was the unraveling of yesterday’s Wave 5(Blue) high. When the market hit 1560.92, that wave was completed, and so was Wave 4(Purple) from 1540.29 low. After rising to 1564.30, the market completed Wave 1(Blue) of the next sequence. Wave 2 was the semi-inverted corrective wave I mentioned earlier. This wave ended at 1561.38. The strong upside move from that point completed Waves 3, 4, and 5 (Blue) of that sequence.

This completed a 5 Wave sequence (Purple) from the 1540.29 low and most likely Wave 3 from 1538.57. A 5 Wave sequence then completed to the downside, terminating at 1567.97, which I believe is the end of Wave 4 from 1538.57, which leaves us with Wave 5, and a target of 1619.

As promised, I will try to break down the semi-inverted corrective wave that occurred today. The 5 Wave sequence began at 1560.92, with Wave 1 ending at 1564.30. This is the blue “1”. You will then see a 5 Wave sequence in white that ends at 1561.38. This is the semi-inverted corrective wave. These waves start with a small corrective move for Wave 1, then Wave 2 moves beyond the higher degree Wave 1, which in this case is the blue “1”. Waves 3 and 4 complete within the boundaries of the blue “1”, and the white “1”. Wave 5 then completes the sequence, and Wave 2 of the higher degree wave, or Wave 2 (Blue).

After a semi-inverted corrective Wave 2, Waves 3, 4, and 5 play out in a fairly predictable pattern. Wave 3 usually ends close to Wave 2 of the semi-inverted corrective wave. In this case blue Wave 3 ended at 1565.76, just below white Wave 2, which was 1565.99. Wave 4 is then usually quite shallow, in this case just over a point, and Wave 5 can be projected using the Wave 1 of 1, and Wave 2 of 2 (white) as reference points. In this case Wave 1 of 1 (Blue) was 1562.40. I then take the points (1560.92, 1562.40), (1562.40, 1565.99), and (1565.99, X), where X is the termination point of Wave 5 (Blue). I then find the value of X, for which the resultant correlation is 1. The number that solves the equation for this example is about 1574.82, very close to the eventual Wave 5 (Blue) high of 1573.89. This is the same relationship I used in yesterday’s example, and the way I can project the Wave 5 high from 1538.57.

The 15 Minute chart shows the entire current wave structure. Wave 1 of this sequence came in at 1564.91, and is the red “1”. Wave 2 (Red) is then the entire move from 1564.91 to 1540.29. This is the semi-inverted corrective wave. I believe Wave 3 (Red) ended today at 1573.89. This is very close to the Wave 2 of 2 high 1573.66, very similar to both examples I have given. The short pullback to 1567.97 is then most likely Wave 4 (Red). Again, in both previous examples Wave 4 was very shallow. Wave 5 is then usually a pretty dramatic move. Again, my target is 1619.

Thank you.