It was a record setting week for the market. From
the low of 1539.80 hit last Friday, the SPX rose to a record high of 1597.35
with not much more than a six point correction along the way. After hitting
that high on Thursday of this week, the market moved lower the rest of the day,
and then sold off sharply Friday morning. After hitting a low of 1579.97, the
market recovered into the close.
The initial rise from last Friday’s low, to
1573.89 on Tuesday, I believe to be Wave 3 of a larger wave from the March 19th
1538.57 low. The subsequent correction to 1567.97 I see as Wave 4. The market
then is currently in Wave 5 from that low.
By way of offering some perspective, I will begin
with the March 2009 low of 666.79. The counts I will offer are based solely on
my model, and should not be confused with any other wave counting method. From
the 666.79 low, the SPX completed a 5 Wave sequence in accordance with my model
at 1370.58. Wave 1 of that sequence took the market to 930.17. Wave 2 was then
a 5 Wave sequence that I have termed a “semi-inverted corrective wave”. I have
been mentioning this term quite a bit in the last week, and I am not sure I
have defined it. In a normal corrective wave, waves 1, 3, and 5 will move
opposite the main trend, with each surpassing the other, while waves 2 and 4 do
not move beyond the starting point of the previous wave. As an example, if the
previous 5 wave sequence was a move higher, a normal corrective wave would have
wave 1 moving down, wave 2 moving up, but not exceeding the previous wave 5
high, wave 3 lower, wave 4 higher, but not exceeding the end point of wave 2,
and wave 5 moving lower. In a
semi-inverted corrective wave, wave 1 would move lower, wave 2 would exceed the
previous wave 5 high, wave 3 would move lower, and terminate between the
endpoints of waves 1, and the previous wave 5 high, wave 4 would move higher
and terminate within the same range, and wave 5 would move lower.
That is what I see in this wave 2, with an initial
move lower, then a move above 930.17 to 956.23 for wave 2, and the entire 5
wave sequence completing at 869.32. Wave 3 was then a 5 Wave sequence that
terminated at 1219.80. Wave 4 was a simple corrective wave to 1010.91, followed
by another 5 wave sequence to 1370.58 to complete the sequence from 666.79. This
entire sequence was then 666.79-930.17-869.32-1219.80-1010.91-1370.58. By then
taking the correlation of the points (666.79, 930.17), (869.32, 1219.80), and
(1010.91, 1370.58), we get .9969.
After the 1370.58 high, the market corrected to
1074.77. This was Wave 1 of an inverted corrective wave. This is a 5 wave
sequence where Wave 1 moves opposite the main trend, Wave 2 moves beyond the
previous Wave 5, and Wave 5 completes without moving beyond the endpoint of
Wave 1. Wave 2 of this inverted corrective wave was the uptrend from 1074.77 to
1563.62. Inverted corrective waves are generally quite powerful, and this was
no exception. This Wave 2 broke down into 5 waves, 1074.77-1292.66-1158.66-1422.38-1266.74-1563.62.
The points (1074.77, 1292.66), (1158.66, 1422.38), and (1266.74, 1563.62) have
a correlation of .9988.
This completed Wave 2 of the inverted corrective
wave from 1370.58, and Waves 3, 4, and 5 completed quickly after that at
1555.74-1562.88-1538.57. The points (1370.58, 1074.77), (1563.62, 1555.74),
(1562.88, 1538.57) have a correlation of .9996. That entire sequence formed
Wave 2 from 666.79.
With 2 waves completed, the market would now need
to complete waves 3, 1, and 5 to complete the sequence. It appears to me like
we are still in Wave 3. This has been a
most interesting wave, and was quite difficult to follow at the beginning. The
SPX first completed a 5 Wave sequence at 1564.91. This was 1538.57-1550.46-1544.02-1561.56-1545.90-1564.91.
This sequence had a correlation of .9997. After reaching 1564.91, the SPX
dropped to 1546.22, and then formed a 5 Wave sequence to 1573.66. These were
Waves 1, and 2 of a semi inverted corrective wave that was the steep decline
that took the market to 1540.29, within 2 points of the 1538.57 low. This low occurred
on Friday, and in my Weekend Outlook of 04/07/2013 I stated my view that the
market had completed a semi inverted corrective Wave 2 and the market would
move up from that point, with a target of 1619. The market followed by moving
almost straight up to 1597.35.
The market completed Wave 3 of this sequence at 1573.89
and Wave 4 at 1567.97. With 4 waves complete it is possible to extrapolate a
target for Wave 5. This target would be above 1621.
Wave 1 of 5 of 3 from 666.79 was fairly extensive,
carrying the market from 1567.97 to 1597.35. At that point the market corrected,
with the market falling to 1579.97. I believe this is the low point of the
correction, but not the end of Wave 2. I believe this is the low point due to a
wave relationship often found with corrections. This relationship is between
the start point of the impulsive wave (1567.97), the low point of the correction
(1579.97), Wave 3 of the previous impulse wave (1584.18), or Wave 2 of an
inverted corrective wave (1588.85), and Wave 5 of the previous impulse wave (1597.35).
This would be (1567.97, 1579.97), (1579.97, 1588.85), and (1588.85, 1597.35). The
correlation using these points is .9973. Should this level be broken, 1571-1572
would be the next support.
Now as to why this may not be the end of Wave 2
from 1567.97. Sharp declines, such as the one from 1597.35 are difficult to
decipher at times. Looking at the entire wave structure from that point, to the
1588.71 recovery high on Friday, there is an interesting possibility for
Monday. During the decline, the market formed a 5 Wave sequence at 1585.82.
This was followed by a small bounce to 1588.64, and then what appears to be
another 5 Wave sequence to 1579.97. After that low, the SPX formed a 5 Wave
sequence to 1586.06, and then what appears to be a semi-inverted corrective
Wave 2 at 1584.41. This followed by a 5 Wave sequence to 1587.68, a small dip,
and then a rise to 1588.71.
Looking first at the wave structure from 1579.97,
the sequence 1579.97-1586.06-1584.41-1587.68-1586.52-1588.71 has a correlation
of .9972. I have noted recently on the wave relationships for semi-inverted
corrective waves. The relationship I mentioned used Wave 1 of one lesser degree
along with Wave 2 of the semi-inverted corrective wave to set a target for Wave
5. The relationship can also be formed using Wave 5 of one lesser degree, and
Wave 2 of the corrective wave. In this case we have (1579.97, 1586.06),
(1586.06, 1588.27), and (1588.27, 1588.71), which yields a correlation of
.9946.The wavelengths of this sequence are also contracting, usually an
indication of the end of a move. So at the moment it looks as if only 4 waves
have completed from the 1597.35 high. If we extrapolate a target using those 4
waves, we get a termination point of 1579-1580. So it looks like it is possible
that the market will test the previous low before moving higher.
Based on targets generated by my model, I see a
re-test of the 1579.97 low, followed by a move above 1605, a small pullback,
and then a further move above 1621. That should complete Wave 3 from 666.79,
and from that point we could see a correction, perhaps to 1551.
Thank you.
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