Weekend Outlook 06/17/12

Earlier this year, as the market approached 1400, I started calling for a top in the market between 1378, and 1422. When the market reached 1422.38, it completed a 5 wave sequence from the March 2009 low of 666.79. Wave 1 of this sequence terminated at 1219.80 and Wave 2 at 1010.91. Waves 3, 4, and 5 terminated at 1370.58, 1074.77, and 1422.38, respectively. Once this sequence was completed, it could either be considered Wave 1 of a larger degree wave that would eventually carry the SPX back above 1422, or wave 2 from the 1576.09 2007 high. At the moment I favor the wave 1 scenario, with a move above 1422 expected, but it is possible that this 5 wave sequence will complete below 1576, and itself will be wave 2 from that high. By analyzing the wave structure from 667 to 1422, two projections for wave 3 of the next sequence can be calculated, one at 1426, and the other at 1497.

The 5 wave sequence from 1422, which I consider Wave 2 from 667, proved to be a bit more complicated. First, a 5 wave sequence unfolded from 1422 to 1291.98. That point became wave 1 of a second sequence which took the market down to 1266.74. In my opinion this completed Wave 2 from 667, with 1422 as Wave 1.

This means that the market is now in Wave 3 from 667, which should terminate at either 1426, or 1497. From 1267, a 5 wave sequence completed with the market reaching 1335.52. This is wave 1 of 3, with the 5 wave sequence from that high, to 1306.62, becoming wave2. From this, my model projects wave 3 to carry the market to 1393.

The SPX, thus far, has completed waves 1, and 2 of a 5 wave sequence from 1306. The market first formed a 5 wave sequence to 1327.28 for wave 1, and then a corrective 5 wave sequence to 1310.51 for wave 2. Wave 3 of this sequence projects to 1367.

In turn, the market has now completed 3 waves, and possibly 4, from that 1310.51 low. Wave 1 was a 5 wave sequence to 1327.44. Wave 1 of this sequence was followed by an inverted corrective wave 2, followed rapidly by waves 3, 4, and 5, at 1327. A corrective 5 wave sequence down to 1320.76 was wave 2. At this point I projected wave 3 to terminate at 1343-1344. Wave 1 from 1321 was rather small, once again followed by an inverted corrective wave 2. Waves 3 and 4 followed, with a rather meandering, elongated, wave 5 completing the sequence at 1343.32.

With wave 3 completed, wave 4 may have been the very minor pullback from the 1343 high. If you look at the 5 wave sequence from 1267, to 1335, you will see that wave 4 in that case was a very minor pullback. Wave 5 of this sequence should carry us to 1367.

We could still see a more extensive pullback for this wave 4, with 1321 being the limit for this scenario. The more likely scenario, however, is a quick run-up to 1367, followed by a more significant corrective, before the market turns higher again on its move to 1393.

Thank you for your interest.

Friday's Market 06/15/12

In yesterday’s post, I said to look for a high between 1343, and 1344, followed by a small correction, and then a move to 1354. This would complete 5 waves from the 1310 low, and wave 3 from 1306.

The market opened higher today, reaching 1335 in the first few minutes of trading. After that, the market moved steadily higher, with only a couple of slight pullbacks along the way. After a pullback from 1335, the market made it to 1337, and then 1338. Here the market saw the biggest correction of the day, slightly less than four points. The market then moved back up to 1338, then 1340, and then, just before the close, it reached 1343.32. The SPX closed just off the high of the day, and that may prove to be important.

The SPX completed wave 3 from 1310 today at 1343.32. Wave 4 may turn out to be the very small pullback from that high. From there I had projected a wave 5 high at 1354. This is the lower end of the range for one relationship I was looking at for my projection. Now that wave 3 has completed, the picture has gotten a little clearer. It now looks like wave 5 could reach 1367, or slightly higher.

There is still room for the market to pullback further from the 1343 high. If the market drops below 1321, this scenario would be nullified.

I will post a further update over the weekend.

Thank you for your interest.

Thursday's Market 06/14/12

Yesterday I said the decline from 1327 was setting up a bullish wave structure that usually indicated a strong rally.

The market opened higher today, reaching the 1318 resistance line. A pullback from that point took the market below the 1316 support level to 1314. Shortly afterwards the market once again rose above the 1318 resistance, and the rally was on. The initial move took the SPX to 1323, and after a brief pause, the market continued to just below 1327. After another small pullback, the market got above 1327, where it finally came under some selling pressure. The market fell to 1321, and then jumped to 1333. Another pullback to 1323 followed, and then the market turned higher into the close. It made it back to 1331 before dipping into the close.

The initial rise to 1318 this morning was wave 1 from 1310.51. This was followed by an inverted corrective wave 2, with the 5 wave sequence completing at 1327.44. That appears to be wave 1 of the next move higher. The drop to 1321 was wave 2, with the action from there a bit more complex. The unusual action from 1321is best seen as a wave 1, followed by an inverted corrective wave 2, and then wave 3. It is possible wave 4 of the sequence has been completed as well, giving a projection for wave 5 between 1344, and 1354. This is line with our wave 3 projection from 1310 of 1343. The market could experience a slight sell-off at that point, bringing the market back into the mid 1330’s, before completing wave 3 from 1306 at 1354.

It is getting a bit complex, I know, but basically I am looking for a move to 1343-1344, a slight pullback, and then another move to 1354. This would complete wave 3 of 3 from the 1267 low.

A couple words of caution. There seems to be a danger area right at 1335. If the market can only make it to 1335, and then fall below 1321, we may be putting in some sort of top. If we exceed 1336, that option is eliminated. Support remains at 1316-1318, and then 1297. Upside targets, once we clear 1336, are 1343, followed by 1354.

Thank you for your interest.