Weekend Outlook 09/21/2013

It was another interesting week for the markets, as all eyes were on the FED. Monday opened with the SPX gapping higher, up to 1703.74. The index then traded sideways up until the announcement Wednesday afternoon. Immediately following the announcement the SPX ran up to 1729 on Wednesday, and followed it up with a slightly higher high on Thursday at 1729.86. It was all downhill after that, as the SPX relinquished most of its gains by the close on Friday, dropping back to 1709.

As I mentioned last week, the SPX has now entered the range to complete 5 wave sequence from the 1627.47 August low. However, there are some indications that the market will make at least one more move higher before it actually completes that sequence.

I have been looking at a target of 1776 to complete a sequence from the October 2011 low of 1074.77. By my count the SPX is now in the third wave of a sequence from 1560.33 that will eventually complete that sequence. The first wave of this sequence completed at 1709.24, and the second at 1627.47. From that low, my count has four waves completed as 1641.18-1640.62-1664.83-1681.96. The fifth wave of this sequence has been difficult to follow on a short term basis, but a look at the longer term count can possibly clarify things to some extent.

Since the minimum target to complete the longer term wave from 1074.77 is 1776, the shorter term waves would also need to project into the same area. If the third wave completed at 1729.86, and this pullback has already carried down to 1708.89, the maximum target for wave 5 would be 1765, short of the 1776 target. For this reason, I would still expect another move higher, perhaps to 1745, before this wave ends. A move to 1745, followed by a pullback to around 1700, still seems to be the most likely scenario.

There a two possible short term counts for this wave which would project into the 1776 range.  The first is my original count, with 1703.74 being wave 1 of wave 5 from 1627. This would allow for the SPX to move slightly lower and still project to 1745. The second involves wave 1 ending before 1703.74, which was then followed by a complex inverted corrective wave. This scenario does fit better from the technical side. The complex corrective wave would have to have ended at Friday’s 1708.89 low, so if the SPX moves lower on Monday, this scenario would be out the window.

It still appears most likely, from my analysis that the SPX should move higher, possibly to 1745, and then be followed by a pullback to near 1700. One final move higher to above 1776 would then complete the entire sequence from the 1074.77 low.