Tuesday's Market 06/26/12

The market opened higher today, continuing the rally from Monday. The SPX hit 1320 within the first fifteen minutes, and then started to sell-off. First, the market fell back to the 1315-1313 support area. After trying to bounce off 1313, the market broke below that support, falling back to 1310. The market found some buyers at that point, breaking back above 1315. From there, the market rallied again, making it back to 1320, and then finding its way to 1323-1324 resistance area. After hitting its high at 1324, the market bounced between 1320 and 1324 into the close, closing near the bottom of that range.

The opening move higher completed a 5 wave sequence from Monday’s 1309 low. Wave 2 then completed at the day’s low of 1310. Another 5 wave sequence completed at 1324, completing 2 waves from Monday’s low. It is possible that wave 4 completed at 1319, with a lesser degree wave 1, and 2 finishing the day.

If this count is correct, wave 5 should terminate above 1340. Both the 5 wave sequence from 1309 and the sub-wave sequence from today’s wave 2, on the 60 minute chart. This scenario would remain intact unless wave 4 carries below the 1313 support level.

The above scenario assumes my current count is correct. That count is wave 1 from 1267 completing at 1336, wave 2 1307, and wave 3 from 1267 underway. Thus far from 1307, I have wave 1 of 3 completing at 1327, and a semi-inverted corrective wave 2 terminating Monday at 1309. This still seems to be the best count, as I still have trouble discerning 5 waves up from 1267.

Although I do not see a 5 wave sequence from 1267, it is possible that it has occurred. The move down from 1363 can also be seen as a wave 1 to 1346, and an inverted corrective wave 2 in progress. Under that scenario, the market would currently be in wave 5 of that sequence. The upper limit for this scenario is a wave 5 high of 1329. A move above that level would nullify that count, with my first scenario remaining intact. Should this inverted corrective wave scenario turn out to be correct, I would expect to see waves 3, 4, and 5 to the downside. This move could be rather sharp, and could carry the market down to the 1297, or 1290 support level. This would not, in my view, necessarily mean the market would move below 1267. It is entirely possible that this would be wave 2 from 1267.

Short-term, I look for a move above 1329, to result in wave 5 terminating above 1340. A move below 1310 would most likely see the market moving down to 1297, or 1290. Support remains at 1315-1313, with resistance still at 1323-1326.

Monday's Market 06/25/12

Let me be the first to admit that I was completely wrong about today’s market. I was looking for a continuation of the move up, and instead the market sold off in rather dramatic fashion.

The market gapped down, and soon found itself at the 1315 support level.  But the market was still not done. After a brief rally attempt, the market continued down below the 1313 support, to 1309. At that point the market was done, spending the rest of the day moving steadily higher to 1316.60, before fading into the close.

The SPX broke some of my important levels today, first breaking through last Thursday’s low, then the 1323-1326 support, then the 1315-1313 support, and finally 1310.51, before the rout was over. The 1311 level was important because it was the wave 2 low from 1307. This means that either my counts were wrong, or something else has been going on since that low. I still think my current counts from 1267 are the best ones, and instead of totally disregarding those counts, I have to look at other possibilities. I did get the count wrong for Friday’s rally, as it is now apparent that the move from 1327 to 1337 was a 5 wave sequence.

Although the SPX moved below the 1311 low, it did hold above the 1307 low. The simplest explanation, and one that keeps all of the 5 wave sequences thus far intact, is that the entire move from 1327.28, to today’s low of 1309.27, has been a semi-inverted corrective wave 2. I have super-imposed the labels to show that all the other sequences remain intact. An example of a semi-inverted corrective wave can be seen on the hourly chart. After the initial drop from 1422 to 1357, the market rallied to 1388, then formed a semi-inverted corrective wave to 1358.79. This count keeps all of my original projections intact, with 1393 being the most likely target for wave 3 from 1267.

From todays low, the market formed a 5 wave sequence to 1316.60. Short term resistance is still 1323-1326, with support at 1315-1313. Should the market fall below the 1307 low, a re-test of 1267 is probably next. At the moment I remain very cautiously bullish, but I will take it one step at a time.

Weekend Outlook 06/24/12

It appears that the market has reached a very critical juncture. In February of this year, as the market approached 1370, my model indicated that a 5 wave sequence from 667 was nearing an end, and the stage was set for a major correction. The market peaked at 1422, then fell to a low of 1267, at which point my model indicated the correction was at an end, but left open the possibility of slightly lower lows. Since then the market has staged a sizable rally, making it back to 1363 this past Tuesday.

As of last week, the market had completed a 5 wave sequence from 1267 to 1336. A 5 wave sequence down, to 1307, followed. These two sequences then became waves 1, and 2 of a larger sequence. From 1307, a 5 wave sequence of one lesser degree completed at 1327. This again became a wave 1, with the corrective wave to 1311 becoming wave 2. The market then completed 3 waves of one lesser degree at 1327, 1321, and 1343.

Last weekend, I outlined the most probable sequence to complete the waves from 1267. This included wave 3 of the sequence from 1307 terminating at 1367, wave 3 from 1267 terminating at 1393, with wave 5 of that sequence terminating at either 1426, or 1497.

The week started off rather flat, as the market completed an inverted corrective wave 4 from 1311. On Tuesday the market rallied, as wave 5 from 1311, and wave 3 from 1307 completed at 1363.46, very near the 1367 target. On Wednesday the market faltered, losing ground, but not undergoing the significant correction I suggested last week. Thursday, however, the market did undergo that correction, selling off to 1324.21, right within the 1326-1323 support. At this point my model suggested a 5 wave sequence from the 1363 high was near completion, and this was confirmed on Friday. The market opened higher, as my model suggested, tested Thursday’s low, again as suggested, and then moved higher the rest of the day.

So now, from the 1267 low, the market has completed 2 waves, at 1336, and 1307, and 3 waves of one lesser degree at 1327, 1311, and 1363 from 1307. A fourth wave from 1307, at 1327, may also have completed.

If wave 4 did, indeed terminate at 1327, the market would now be in wave 5 from 1307, to complete wave 3 from 1267, which I projected last weekend to terminate near 1393. This projection was based on the sub-wave structure of wave 1, which was the move from 1267, to 1336. Sub-waves normally give two separate projections. I chose this one because the other was much higher, and seemed less plausible. Having now completed wave 3 from 1311, to 1363, the sub-waves from that sequence can be used to create a projection to the same point, and the entire sequence from 1307 can now be used for a third projection to the same point. Using the first two projections, the target range for wave 5 can be narrowed to 1373-1381. Given a wave 4 termination point of 1327, however, the third projection does not fall into that range. If this scenario is to be the correct one, the SPX would need to continue the correction from 1363 a bit further, down to the next resistance level of 1313-1315. Given the wave structure of the corrective wave 4 from 1363, and the rally from 1327, this seems a low probability.

As I noted above, sub-waves usually generate two separate projections. The second projection using the sub-waves from wave 1 is near 1475. The second projection using wave 3, from 1311 to 1363, is near 1475. The entire wave structure from 1307, using 1327 as the wave 4 low, gives a projection near 1475. With all three projections converging on the same point, this seems the most likely scenario given the current data. This seems on the surface to be extremely optimistic, but that is where the data leads.

The third scenario is the one that says I am dead wrong. Given the current count, the move from 1363 cannot drop below 1310.51. If this happens, it would mean a 5 wave sequence from 1267 has most likely occurred, with the most likely outcome a re-test of the 1267 low. There is one possibility for this scenario, but the waves do not break down very well. Never the less, a break below 1311 would validate this scenario.

The most likely scenario seems to be the one that points to 1475. The corrective wave from 1363 unfolded as a nested inverted wave structure, a structure I have called out in the past. These structures normally indicate the end of a move, and are not usually found at the beginning of a move. This suggests that 1327 was the end of wave 4, and wave 5 from 1307 is now underway. This wave also terminated within the 1326-1323 support area.

The structure from 1327 also appears bullish. The waves thus far have been expanding, usually indicating a continuation of the trend. At least 3 and possibly 4 waves have completed from the low. Using that structure, and the sub-wave structure of wave 3, projects the current wave to terminate at 1358 short term. At that point the market will make a decision. If that turns out to be a wave 1, wave 3 will carry us above 1363, confirming a resumption of the uptrend, and possibly carrying the market back above 1400. Otherwise the market will turn lower. Support remains at 1326-1323, and then 1315-1313. If that support is broken, a break of 1307, and a resumption of the correction from 1422 is possible.