Weekend Outlook 04/07/2013

I apologize for the lateness of this Weekend Outlook. I had some prior obligations that kept me from away until now. However, that time did give me time to ruminate about the market action of last week.

I will confine most of this post to the move from 1538.57. After reviewing my charts this weekend, I believe I have finally reconciled the issues I have had with my count from that point. Interestingly, Friday’s plunge to within two points of that low was the key. It reminded me of a similar point in the market that occurred in April-May of last year.

On Friday, 4/20/12, the market closed at 1378.53. From a recent 1357.38 low, the market had trended higher in choppy trading. On the following Monday, the market dropped nearly twenty points, to within two points of the 1357.38 low. At the time, most people were looking for the market to continue the decline, but instead the market quickly rose to 1415.32. That nearly twenty point plunge turned out to be Wave 5 of an inverted corrective wave.

Given the above scenario, the action from the 1538.57 low started to look quite familiar. Upon further examination, it appears that I missed a couple of waves. The first error was during the initial uptrend to 1561.56. I had originally counted that as a single 5 Wave sequence, but would now suggest that it was actually Waves 1, 2, and 3 of a sequence. That sequence then completed at 1564.91. Thus we have 1538.57-1550.46-1544.02-1561.56-1545.90-1564.91.

The second error I mentioned last week. That is, the move from 1546.22 to 1573.66 was a 5 Wave sequence. This sequence was 1546.22-1563.95-1551.90-1568.30-1558.47-1573.66. Wave 4 was another example of a semi-inverted corrective wave. The decline from 1573.66 to 1540.29 then completed Waves 3, 4, and 5 of a semi-inverted corrective wave from the 1564.91 high.

I still see 1538.57 as the completion of a 5 Wave inverted corrective wave from 1370.58, and Wave 2 from 666.79. This would mean that the market has now completed Waves 1, and 2 of Wave 3 from 666.79.

Looking back at the first example, Wave 1 of 1 completed at 1374.71, while Wave 2 of 2 completed at 1392.76. The correlation between these wave points, and the ultimate high of 1415.32 was .9973. That is, using the points (1357.38, 1374.71), (1374.71, 1392.76), and (1392.76, 1415.32), yields that correlation coefficient. Applying the same relationship to the current wave, gives a target of 1619.00.

If this count is correct, the market should not move below 1538.57 anytime soon. If this sequence ends at 1582.50, there should be a correction, and then another move higher to complete Wave 5 from 666.76.

Thank you.