Saturday, July 13, 2013

Friday's Market 07/12/2013

Considering the volatility the indices have experienced lately today was in comparison rather tame. There was no gap opening this morning, as the markets opened flat, then moved above and below the flat line, settling at 1672.96. The SPX then tried to rally; moving above yesterday’s high, and rising to 1677.41. Another round of selling took the index down to 1672.33, where it found some support. The SPX continued to trade in a narrow range until late afternoon when the buyers came back. This buying led to an almost six point rally into the close.


I believe that lately I have been guilty of trying to have too many waves complete in too short a time. Taking today’s market action into consideration, it now appears that Thursday’s 1671.03 high marked the end of a sequence from 1647.66, and not 1671.00 as I had thought. As I mentioned before, this wave completed without a complex corrective wave, which usually results in a higher degree wave forming from the previous low. That seems to be exactly what happened, as this morning’s 1677.41 high completed the third wave, and this afternoon’s high of 1679.74 completing the fifth.


With the sequence from 1647.66 completed, the next step is to examine the sequence completed so far from 1604.57. The structure so far consists of a 5 wave sequence that completed at 1627.06, a pullback, another sequence completed at 1657.92, another pullback, and now a third sequence higher that completed today at 1679.74. Taken together, these 5 waves do not yet appear to complete an entire sequence from the 1647.66 low, which makes it most likely that the SPX is forming a complex correction.

Looking at the first pullback from 1627.06, we see that it was just over 12 points, and touched the 55 period EMA. The second pullback was just over 10 points, and again touched the 55 period EMA. If the SPX is indeed forming an inverted corrective wave as I suspect, I would expect another pullback to occur at this point. This pullback should be proportional to the previous two pullbacks, which means it should be slightly less than 10 points. Ideally, a pullback to 1670 would satisfy the parameters for an inverted corrective wave from 1627.06. This wave would be 1627.06-1614.71-1657.92-1647.66-1679.74-1670. As with the other two pullbacks, this one should touch the 55 period EMA, which at the moment sits at 1669.97. Looking at the sub-wave structure of the 5 wave sequence from 1647.66 to 1679.74, a first support level of 1670 is also indicated. This makes it seem likely that we can expect a pullback from today’s high to 1670.

Assuming that pullback occurs, it would mark the completion of an inverted corrective wave from 1627.06. This would then be Wave 2 from 1604.57, with waves 3, 4, and 5 needing to complete. Again, waves 3, and 5 need to be proportional to wave 1, which was just over 22 points (1604.57-1627.06). With the inverted corrective wave being so strong, it is likely that wave 3 will be somewhat smaller than wave 1, and wave 5 smaller than wave 3. Most often in cases like this, wave 5 completes just above the high of the corrective wave (1679.74), with the total length from wave 2 to wave 5 being approximately equal to wave 1. Given a pullback to 1670, this means this sequence should complete near 1692. At that point I would expect a slightly larger pullback.

The second support level indicated by the sub-wave structure of the just completed wave is 1659. Should the SPX fall to this level, I would need to consider that 1679.74 marked the high from the 1604.57 low. Either count suggests higher prices lie ahead.

I would look for a pull back to 1670, followed by a move higher to 1690-1692. That should be followed by a slightly larger pullback. If the SPX falls to 1659, I would expect higher than that 1690-1692 level.

Thank you. 

No comments:

Post a Comment