Friday's Market 05/24/2013

Today looked like a mirror image of yesterday, with a gap down open, followed by a steady move higher. The move lower was expected, however the unexpected part was that yesterday’s low held. That could be an important indication of what is to come.

The SPX gapped lower at the open, dropping initially to 1640.12, and then chopped its way lower to 1636.88. From there the index moved higher, reaching 1645.78 shortly after noon. After a small pullback to 1642.45 the market continued higher, reaching 1649.61 before the next pullback. This pullback took the market to 1645.14, and was followed by a steady move higher into the close, slightly eclipsing the 1649.61 high at 1649.78 just before the close.

From this morning’s 1636.88 low the action seems fairly straightforward. The SPX completed a 5 wave sequence higher at 1645.78, followed by the completion of a higher degree sequence at 1649.61. After the ensuing pullback, the SPX then moved above that 1649.61 high, indicating the index is still completing a higher degree sequence to the upside.

The fact that today’s move lower did not take out yesterday’s low, and the action subsequent to that, forced me to re-evaluate my count from the 1687 high. I see two main possibilities at the moment, and I will start with what I see as the most likely one. The move from that high can be counted as a 5 wave sequence; 1687.18-1674.28-1683.10-1665.38-1670.33-1635.53. Wave B of this sequence, 1674.28-1683.10, was a semi-inverted corrective wave. This count would indicate that 1635.53 was the low of this corrective wave, which in my count is Wave 4, and should be followed by Wave 5 to new all-time highs. If this count turns out to be correct, the action from that low appears to be a nested wave structure, which usually results in a rapid move.

The alternate count at this point is Wave A at 1672.96, with the move up to 1683.10 as the first wave of an inverted corrective wave. Wave B of that wave would be yesterday’s drop to 1635.53, and Wave C the recovery to 1655.50. Wave D would be this morning’s drop to 1636.88. This Wave would complete between 1654 and 1659.

If the SPX can get above 1660, it is most likely that the correction has completed, and we will move to new highs soon. If this move stalls below 1660, the market should make new short term lows. It should be an interesting week.

Thank you.