Wednesday's Market 06/20/12

As I noted yesterday, the SPX finished a 5 wave sequence down from 1363 Tuesday afternoon at 1357. This morning the market opened higher, continuing the move up from that 1357 low. 1357 would soon prove to be only wave 1 of another sequence down, however, with today’s higher opening completing wave 2. The market quickly fell below 1357, dropping below 1355. The market then rallied to the 1358 resistance level, and fell back once again. After again falling below 1355, the market tried to rally again, but this time only made it to the 1357 resistance level. At that point the market fell sharply, dropping to 1346.45. This completed another 5 wave sequence from the 1363 high. A more robust rally ensued from there, and the SPX rather quickly found itself above 1361, completing a sequence from 1346. Almost as quickly as the market rose, it fell once again to near the previous low, but held above it. The SPX then rose into the close, making it back to 1355.

My outlook yesterday was fairly pessimistic, mostly based on the wave structure from 1363. In the move from that high, to the sequence low of 1357, the impulsive waves 1, 3, and 5, were increasing in length. That usually indicates the move has further to go. That played out today, as the 1357 low did not hold, and the market fell to 1346. The impulsive waves in this sequence were contracting, indicating the move may be nearing an end. The ensuing move higher, from 1346, to 1362, contains expanding waves, and the drop back to 1347 contracting waves. All these structures would indicate the move lower may be at, or near an end, with a move higher imminent.

I currently have this move as wave 4 from 1306.62. Thus far, the correction from 1363 has been 17 points, almost precisely that of wave 2 of this sequence, from 1327, to 1310. In the case of inverted corrective sequences, waves 1, 3, and 5 typically are very similar in length. This opens the possibility of the entire move from 1327.28 forming an inverted corrective wave. If this is the case, we should see another impulsive move higher, followed by another wave down of approximately 17 points.

Near term, a break of 1347 would indicate a further move to the downside, with support clustered between 1326, and 1323. Resistance is still at 1357-1358. If we move above that, I will be watching 1361. If the market moves above that, we should be on our way back up.

Thank you for your interest.

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.