Tuesday's Market 07/02/2013

I mentioned yesterday that today’s first move would most likely be to the downside. That turned out to be the case, as the SPX gapped down at the open, pulling back to 1613.07, but remaining above yesterday afternoon’s 1612.85 low. After that lower open, the index moved higher, fairly steeply at first, climbing to 1621.98 within the first half hour, at which point the trading turned choppier as the SPX churned its way up to 1624.26. This was reminiscent of yesterday’s open, with a steep climb leading to a choppy high. As was the case yesterday, the choppy trading led to a short term top, followed by a sharp decline. Unlike yesterday, however, today’s decline dropped below the previous close, and then continued down to 1606.77. After reaching that level, the SPX tried to recover, moving back up to first 1612.65, and then 1615.01 near the close after a small pullback.

From yesterday afternoon’s 1612.85 low, the SPX completed the first wave of a sequence at 1616.11. This morning’s lower opening then became the first wave of an inverted corrective wave. This inverted correction completed at 1620.39, and was followed by the completion of the sequence from 1612.85 at 1624.26. The first wave of the subsequent decline ended at 1618.07, which was again followed by an inverted second wave, which terminated at 1610.15. The 5 wave decline from 1624.26 then terminated at 1606.77, close to the 1605 support level I spoke of yesterday. From that point, the SPX completed 3 waves higher to 1615.01.

Looking at the entire wave structure from the 1626.61 high, it appears that yesterday afternoon’s decline to 1612.85 was the first wave in a 5 wave sequence to the downside. This morning’s climb to 1624.26 was likely the first wave of an inverted corrective sequence. The decline to 1606.77 was the second wave, with the three waves higher into the close completing the inverted corrective sequence. It is now likely that the SPX will move lower to complete the sequence from 1626.61. I would still characterize this as the fourth wave of a sequence from 1560.33.

I am looking for a lower open to the day tomorrow. I would still expect this wave to end near the 1605 support level. If the index falls below 1601.06, I would need to re-evaluate my count. Up to this point nothing has occurred to alter my view of this being the fourth wave from 1560.33. Wave 1 completed at 1589.13, with an inverted corrective wave 2 completing at 1601.06. Wave 3 then completed at 1626.61. Wave 4 should finish near 1605, and be followed by wave 5 to 1631. Keep in mind that this will in turn be the first wave of a higher degree wave, and second waves are often inverted corrective waves. This could mean a shallow correction, followed by a swift move higher. But I do not want to get too far ahead of myself. For now, the level to watch is 1601.06. Unless that level is broken, I look for a move higher to 1631.

Thank you.