Tuesday's Market 06/19/12

The market gapped to the upside this morning, reaching 1353 in the first few minutes of trading. This opening move eliminated the two alternate scenarios I discussed yesterday, keeping my main count intact. After only a minor pullback from 1353, the SPX continued higher, moving to 1359, then 1360, and finally a strong move to 1363.46. After that strong move up however, the market quickly reversed course, dropping back near 1357 before finding support. The ensuing rally could only carry the market back to 1361.51, before moving back down to 1357. In the final minutes of trading, the SPX moved slightly off its lows.

The move today from my 1344 wave 4 low, unfolded in 5 waves, with wave 1 being the opening move to 1353. The second move of the day to 1358 was wave 3; with wave 5 subdividing into 5 waves, and terminating at 1363.46. This was very near our optimum wave 3 target of 1367. I was looking at three separate relationships all converging on that number, and today’s high satisfies my model in all respects.

It seems that the market has now completed a 5 wave sequence from 1307, and three waves thus far from 1267. From this point I was expecting a corrective sequence, and then wave 5 from 1267 to terminate near 1393. The move today from 1363 to 1357 breaks down into 5 waves. There is also support at 1358, and 1357, given the wave structure from 1307. If the corrective wave ends there, it now appears that wave 5 will carry above my original 1393 projection, and terminate between 1410, and 1414. This would complete the 5 wave sequence from 1267.

If the correction does not end here at 1357, things are a little less rosy. I mentioned support at 1358, and 1357, but there is then a large gap before the next support levels. The next cluster of support is between 1326, and 1323, and then between 1315, and 1313. While another move higher would still be in order, the wave 5 projection for this scenario would be between 1372, and 1381.

While there are other scenarios, these two seem the most likely. A move above today’s high of 1363 would spark another strong rally, moving the market above 1400 to the 1410-1414 level.

Conversely, a break below 1357 would result in what appears would be a rather significant sell-off into the 1320’s. This sell-off should hold above 1307, with wave 5 from 1267 terminating between 1372, and 1381.

Thank you for your interest.

Monday's Market 06/18/12

The market opened lower today, gapping down, and continuing until it reached 1334.46. That proved to be the low of the day, with the market quickly rallying above Friday’s close, to 1346.59. Another decline ensued, but kept the SPX above 1334. The market rallied again, reaching new highs, and topping at 1348.22. Another decline into the close followed, dropping the market to 1343. After that the market rose slightly just before the close.

The market action today seemed somewhat positive, but has left open several possible courses for the market. Sticking with our current count, the market formed five sequences from Friday’s 1343 high. This appears to be an inverted corrective wave 4, which terminated at 1343.64. If this is correct, the market should move higher from here, with our short term target remaining at 1367.

A second possibility that appeared today is another 5 wave sequence from 1321 being completed. In this scenario 1343, 1347, and 1348 are waves 1, 3, and 5 respectively. This would likely mean a further correction is forthcoming, with a move near 1330 a possibility. If the market moves below 1343 before making a new high, this would be the most likely scenario. From that low, the market could then move higher. I’ll address this in more detail should this scenario materialize.

A third possibility is the entire move from 1327, to this morning’s 1340 low being part of an inverted corrective wave 2. Today’s high of 1348 would be wave 3 in this case. A move to 1350 would then complete a 5 wave sequence from 1306.62, with a high probability of a further correction.

In the near term, if the market can hold 1343, and move above 1350, the next stop should be 1367. A move up to 1350, and then a break of 1343, would mean a further correction. If the market opens to the downside, it should move back up to 1350.

Thank you for your interest.

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.