Tuesday's Market 06/12/12

One of the scenarios I mentioned yesterday had wave 3 from 1336 terminating near 1306, with wave 5 ending slightly below that. I said if that scenario played out, the correction from 1336 was most likely over.

The market opened higher today, moving up to our resistance line at 1316. The market turned lower from there, moving slightly below yesterday’s low, bouncing slightly, and then making another slightly lower low at 1306.62. At that point the market rallied sharply, rising swiftly to 1320.75. The mid-day hours were spent in a fairly narrow trading range, bounded by our 1318, and 1316 support/resistance lines. Nearing the last hour of trading, the SPX broke above 1318 once again, bounced off of it twice, then rallied into the close. This last rally carried the market above 1324. This 1324 level has been a persistent point of support, and resistance since before the 1267 low. It is interesting that it has appeared once again. Perhaps this time the market will put that level behind it for awhile.

The action this morning, in my view, was the completion of a 5 wave sequence from 1336, and the end of the correction phase from that point. It appears the market has completed 4 waves up from 1307, with wave 5 expected to terminate between 1329, and 1333.

That should complete a 5 wave sequence from 1307, but I believe the market is headed to the upside. To the downside, the 1307 level is significant. Should the market fall below that level, the correction from 1336 could continue.

Thank you for your interest.

Monday's Market 06/11/2012

A 5 wave sequence was completed today as the market opened higher, hitting 1335.52, right in the middle of the 1333-1337 target range. After that strong opening move, and the completion of the sequence, the market quickly reversed course and started selling off. The market completed a 5 wave sequence to the downside at 1320, and tried to rally. However, the market only made it to 1326 before heading back down.

Given the first 5 wave sequence down, 1318, and 1312 were the downside targets for a possible wave 3 from the 1336 high. Both of these levels were right at resistance levels identified over the weekend. The market hit 1318, bounced, dropped to 1317, bounced again, then broke through that support level, and fell to 1312.70. After another short rebound to the 1316 resistance level, the market completed 5 waves from 1336 at 1307.73.

With a 5 wave sequence completed from 1336, it is possible that this corrective phase is over, and the push higher will continue. At this point, however, it would seem that the market still needs to work lower before resuming that uptrend. With the break of the 1316 support, the next support is near 1290. The same thing can be seen on the hourly chart, with support at 1298. It seems most likely that the market will move down to those support levels before moving higher.

Assuming today’s 1308 low was wave 1; wave 3 would project to either 1306, or 1300-1294. If wave 3 occurs at 1306, wave 5 would project at slightly below that. If this scenario plays out, the correction should end at that point. If wave 3 occurs below 1300, wave 5 should terminate near the 1298, or 1290 support levels.

If the market is able to move back above the 1316-1318 resistance levels, the rally could very well resume at that point. Right now it is difficult to say, for the short term, which way the market will go. Longer term, the bias is still to the upside.

Thank you for your interest.

Weekend Outlook Part 2 06/10/12

As promised, I’ve put together some support/resistance charts, and worked on some projections for the next waves.

The first chart shows the support/resistance lines generated by the wave from 1422 to 1267. Due to the structure of the wave, it has generated quite a few lines. There are several interesting features to this collection of support/resistance lines. There is a large cluster of lines between 1268, and 1338, and then a large gap above 1338. This gap extends to 1387, where another cluster of lines appear. This suggests once again that the 1338 level is an important resistance level and that if the market clears this level, it should encounter very little resistance until it reaches 1387. This cluster above 1387 will become important again as the next wave sequence is projected.

This next chart gives the support/resistance lines that will be generated assuming the move from 1267 ends at 1337. These may change slightly once the exact termination point is known. This chart shows a large gap in support between 1316, and 1290, once again indicating that if the market breaks below 1316, it could head back down near 1290. It is important to note that other lines will be generated by wave 5, of 5 from 1267, meaning that a correction from a wave 5 high near 1337 may terminate before reaching any of these levels.

On the weekly chart, I have added projections given the sub-wave structure from 667 to 1422. If we have seen the low of the correction from 1422, and the market is moving higher, I see 1426, and 1497, as the two most likely stopping with one of those levels becoming the termination point of wave 3.

Lastly, I have made a next wave projection assuming that wave 1 will terminate near 1337. This projection puts wave 3 from 1267 at 1393. Going back to the first chart, you can see that 1393 falls right in the middle of the resistance cluster found between 1387, and 1398.

I have made several assumptions in putting these charts together, mainly regarding the termination point of the current wave. I made those assumptions in order to show the next possible scenario. If the current wave ends near 1333-1337, we can expect, after some sort of correction, for the market to move up to 1393. After a wave 4 correction the market should then move higher to either 1426, or 1497.