Thursday's Market 08/29/2013

As I indicated may be the case yesterday, the SPX opened to the downside, gapping lower to 1630.88. The index moved sharply higher off that low, quickly surpassing yesterday’s 1641.18 high before pausing. Following that slight pause, the index continued higher, moving to 1645.62, and then chopping higher until it reached 1646.41. After that the SPX turned lower for the remainder of the day, dropping back to 1643 by early afternoon. After a bounce to 1645 the index fell to 1640, and after another bounce to 1643, fell back to 1636.69 by the close.

I mentioned yesterday that the SPX may complete a 5 wave sequence at 1630, and if it then rose above the 1641.18 high, that it may continue to rally towards 1651. The index did complete that sequence this morning at 1630.88, and then moved above that high. The rally fell short of the 1651 level, as the SPX lost most of its gains by the close. The index appeared to complete a sequence higher at 1646.30, marking the third sequence from the 1627.47 low, as 1641.18-1630.88-1646.30. The move lower from that high does not appear to have completed a sequence.

At this point, the three waves higher off the 1627 low would seem to be part of a complex corrective wave, and it is still likely that the SPX will move lower, possibly into the 1621 support level, to complete a sequence from 1669.51. There is a possible count that points to this area as completing a 5 wave sequence from the 1709.24 high. A move to 1621 would complete that sequence right at a support level. Looking longer term, there are three likely scenarios. The first and the one I have spoken most about, calls for the SPX to rally to the 1685 level, before making another leg down to 1540. The second would have the SPX rallying, but falling short of 1685, and would likely lead to a low below 1540. The third has this as the end of the corrective phase, and would be followed by new all-time highs. I have not been convinced that this correction would carry below 1560, so at the moment, this is the scenario that I would favor. A lot will depend on the support/resistance level that I have mentioned, 1621, 1651, 1668, and 1685. A move below the 1621 level would favor the most bearish scenario at this point.

Yesterday I gave a scenario of this wave playing out as 1621-1628-1618, and that still seems to be a good guideline. A move above 1646 would point to 1651, and then 1668 as the next resistance levels.