Friday's Market 06/28/2013

Now that was fun! It seems that whenever one side gets too comfortable, the market throws in a day that tests the resolve of both sides. Today was such a day. The Bears took the early lead, starting the day off with a gap down, and then continuing to move the SPX lower, until it reached 1607.85. A small bounce took the index back to 1610, but the selling took hold once again, and the SPX dropped back near the 1600 level, settling at 1601.06. That was all the Bulls needed to get started, pushing the SPX back up into positive territory for the day in just over an hour. This move brought the SPX to 1615.64, where the Bears tried to move the market lower. They succeeded to a point, dropping the index to 1607.38 before the Bulls came back. They moved the SPX to 1615.94, just taking out the previous intra-day high. Another push down took the SPX to 1609.38, which fell short of the 1607.38 low. The next move higher stopped short of both previous intra-day highs, stopping at 1615.49. However, just as it looked like the SPX might finish positive for the day, the index dropped precipitously in the last half hour most notably in the last few minutes of trading. This drop took out the two previous intra-day lows, but stopped short of the early morning 1601.06 low, at 1606.24.

From Thursday’s 1620.07 high, I was anticipating a zig-zag like move lower, and given Thursday’s drop to 1611.94, and subsequent rebound, I was expecting this pattern to end near 1608. The initial drop to 1607.38 looked the completion of this pattern, but the drop through that level to 1601 fell outside my model’s parameters for that count, and started to indicate a more bearish count. However, the drop from 1620 to 1607 actually completed in a 5 Wave sequence, with the rebound to 1610, and drop to 1601 actually completed the pattern I was looking for, albeit at a slightly lower level than anticipated. This completed the inverted corrective wave from 1589 that I spoke of yesterday, and most likely marks a near term low.

From that point things got very interesting. First, the SPX completed a 5 Wave sequence up to 1615.64. This was followed by a series of sequences, 1607.38-1615.94-1609.38-1615.49, and finally the move down to 1606.24. Notice that from the 1615.64 high (and yes, some snicker at my choice of time frames, and affinity for precision), the SPX fell to 1607.38. The index then made a slightly higher high at 1615.94, followed by a higher low at 1609.38. The next high fell short of both the 1615.94, and 1615.64 highs. This was followed by a move down that ended lower than the 1607.38 low, but remained above the 1601.06 low. This appears to be a classic semi-inverted corrective wave, with the 1606.24 low satisfying my model for this wave, although the range was extremely tight. This development could point to a very bullish scenario, at least in the short term.

In the very near term, this wave structure points to a target near the 1631 price level that I have previously mentioned. Moves from this structure are usually swift, and I would be looking for something like 1621-1616-1631 to complete the 5 Wave sequence from 1601.

The second thing to keep in mind is the count from the 1560 low. I had been expecting 1631 to complete 5 waves from this low, but it is now more likely that 1631 will mark the completion of only Wave 3. Since Wave 2 from 1560 was a complex corrective wave, the rally to 1615.64 most likely cannot be Wave 3, since it too was followed by a complex corrective wave. In the vast majority of instances only one corrective wave in a sequence can be complex. This would point to a continuation of the move from 1560 beyond the 1631 level.

I apologize for getting extremely technical, but sometimes I feel it necessary. If you made it to this point, I thank you, and offer this alternate version. I believe 1601.06 will hold for some time. The next move should be higher, something like 1621-1616-1631. 1631 will then be Wave 3 from 1560, and after a small pullback from that point, the SPX should move higher once again to complete 5 Waves from 1560.