Thursday's Market 01/30/2014

FOMC statements often provide the catalyst for market volatility, and Wednesday was no exception. Following Tuesday’s decidedly positive tone, the SPX gapped down to open Wednesday’s trading session, plunging to 1775 within the first ten minutes of trading. I had been looking for a modest continuation of Tuesday’s rally to the 1800 level, but the market had other ideas. The SPX rallied back to 1787 by late morning, and then drifted lower as it awaited the Fed statement.

Once that statement was released, the real fireworks started. The SPX first spiked higher to 1784, but quickly reversed to fall to 1777. Another rise to 1782 was followed by a second drop, this time to 1774. From there the index recovered to 1779 before a final drop to 1770.45. A more extended move higher followed, as the SPX moved back to pre-statement levels at 1782.92, and then re-tested the day’s low by dropping to 1770.98, just above that low. The index then moved slightly higher into the close.

The market action from Tuesday’s 1793.87 high to yesterday’s 1770.45 low appears to have completed a 5 wave sequence from 1849.31, and Wave B of 2 from the 1850.84 high.

Today started with a sharp rally, with the SPX gapping up to 1790.31 at the open. After a pullback to 1784, the rally continued. The SPX would reach 1798.77 before the next meaningful pullback. This brought the index back to 1792.09 before the SPX rallied again, this time to 1797.68, before slumping into the close.

Looking at the count from yesterday’s 1770.45 low, the SPX completed Wave 1 at 1782.92. The pullback to 1770.98 was then Wave A of 2. This inverted corrective Wave 2 took the index to the day’s high of 1798.77, and then completed at 1792.09. It would appear that Waves 3, 4, and 5 from 1770.45 then completed at 1795.93-1794.18-1797.68.

This should complete Wave C of 2 from 1850.84. Support is now at 1790, and then 1781. The SPX could pull back to one of those support areas to complete Wave D, and then complete Wave E, and Wave 2 somewhere above 1800. The more bearish scenario is that the SPX falls below 1770 before completing Wave D of 2, and then after another short-lived rally continue lower. My downside target remains at 1679.

Tuesday's Market 01/28/2014

As of my last post, I was looking for a move to between 1828 and 1845 to complete a 5 wave sequence from the October 2011 low of 1074.77. My short term count turned out to be incorrect, as the SPX made a high of 1850.84. This high would seem to complete the aforementioned sequence.

From the 1074.77 low, my count has 1292.66-1158.66-1422.38 as the first three waves of the sequence. Wave 4 turned out to be an inverted corrective wave that completed at 1560.33. The recent 1850.84 high satisfies my model for the completion of this sequence.

From the 1560.33 Wave 4 low, I count 1709.36 as Wave 1 of 5. Wave 2 was an inverted corrective wave that completed at 1646.47. Wave 3 completed at 1774.54, and was then followed by Wave 4 at 1746.20. Once again, the 1850.84 high completes this sequence according to my model.

The sequence from 1746.20 proved to be the most challenging. The quick rise to 1773.44 was the first wave in this sequence. The small pullback to 1760.64 would ultimately be Wave A of an inverted corrective wave. Wave 1 of B completed at 1802.33, with Wave 2 of B turning out to be a semi-inverted corrective wave which completed at 1767.99. Waves 3, 4, and 5 of B then completed as 1811.08-1801.35-1849.44. From this point, the inverted corrective wave that started at 1773.44 could now finally complete, and it did at 1815.52. Following this rather extended sequence, Waves 3, and 5 then completed quite quickly at 1837.41-1834.14-1850.84. So the 1850.84 high completed a 5 wave sequence from 1746.20, which completed a sequence from 1560.33, which completed the entire sequence from 1074.77.

If this count proves to be correct, the SPX should continue lower, with a first target of 1679.

Counting from the 1850.84 high, I have a Wave 1 completing at 1835.23. The subsequent rise to 1849.31 would seem to be Wave A of an inverted corrective wave. Wave B carried the SPX sharply lower, completing a sequence as 1832.38-1846.87-1824.49-1828.50-1772.88. Wave C seems to have completed at 1793.64 and Wave D at 1779.49.

Given the sequence so far, I would be looking for Wave E and Wave 2 from the 1850.84 high, to complete near 1800-1801. After that I would look for another move to the downside, perhaps to 1744. After a bounce off this low, the stage should be set for a final move lower to 1679.