Monday, August 12, 2013

Monday's Market 08/12/2013

The market kept to the same script we saw much of last week; an opening gap down to start the day, followed by a slow drift higher into the close. Although the patterns were similar, there was one key difference worth noting. In all the instances last week, with the exception of last Monday, the initial move to the downside did not hold as the low of the day. Today it did. It is also worth noting that today’s action was identical to last Monday’s trading action; a gap down to open, followed by a lower high, a higher low, and then another lower high. That pattern led to a move lower into today. Last Monday, however, the market was coming off overbought levels at the 60 minute time frame, while today the SPX hit oversold with a positive divergence.


As I mentioned above, the SPX gapped down at the open today, and took out the 1684.91 low along the way. The index rallied almost immediately from that point, rebounding to 1691.49. After that, the SPX moved lower, dipping to 1686.34, before rebounding into the close.

The move below 1685 took the 1604.57-1698.38-1676.03-1709.24-1684.91 inverted corrective wave scenario I had talked about over the weekend out of play. Last Friday, the Dow made a new short term low, while the SPX did not. That index seemed to complete an inverted corrective wave with the last three waves forming a zig-zag from the 15655.75 high. Today, the SPX hit a new short term low, while the Dow did not. It would appear that the SPX has completed an inverted corrective wave in the same fashion. As I noted over the weekend, the move from the recent 1684.51 high has been difficult to follow. Over the weekend I treated 1698.38 as the end of the wave from the 1604.57 low, but it now appears that wave carried all the way to 1709.24. The inverted corrective wave can then be counted as 1604.57-1709.24-1684.91-1700.18-1683.35. This seems to be supported by the fact that the move from 1709.24 to 1683.35 appears to have completed with 3 waves.


It is still possible for the market to move further to the downside, with support at 1676, and then 1668. I still expect the SPX to move higher, with a minimum target of 1776. A move above 1709 would likely confirm that.



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