Tuesday's Market 07/03/12

On Monday I said a 5 wave sequence had completed at 1365, and to expect a move lower at the open Tuesday. The market actually opened slightly higher, before the anticipated move lower. That move lower was quite minor, taking the market only to 1363.53, before rising once again. Yesterday I said if 1356 held, I would first look for a high at 1368, and then another, slightly higher, top. From the morning’s low at 1364, the market moved to 1368.27, pulled back slightly, then made another top at 1370.08. At this point, there was a possibility that this was the completion of a 5 wave sequence from 1356, with waves 1, 3, and 5 ending at 1365, 1368, and 1370. In order for this scenario to be true, the move from today’s low would need to have been 2 separate 5 wave sequences, forming waves 3, and 5. The move from 1364 formed as one 5 wave sequence, indicating this was not the termination of a sequence.

This was confirmed as the market failed to move below what would have been wave 4, 1367.53, and then moved above the 1370 high. I discussed yesterday that a move above 1372 would most likely mean higher prices ahead, based on the wave count. After moving above 1370, the market continued to rally, reaching 1374.81. The market then fell back to 1370, before rising again into the close.

In my view, today’s slightly higher open at 1365.39, completed wave 5 from 1355.70. That then became wave 1 of a larger degree sequence with wave 2 completing at 1363.53. The rest of the day was spent forming waves 1, 2, 3, and 4 of a smaller degree sequence. Wave 4 terminated at 1369.80, meaning the market is poised to move higher when it re-opens on Thursday. Wave 5 should terminate at 1378, completing wave 3 from 1355.70. Wave 4 should be a very small corrective wave most likely less than 2 points, with wave 5 completing at 1391.

At this point the market could undergo a bit more of a correction, but the magnitude of this is still unclear. Longer term, it appears the uptrend from 1267 is continuing. After 1391, my next targets are 1426, and 1497. Support is at 1367, 1357-1356, and 1326-1323.

Monday's Market 07/02/12

The market opened slightly lower this morning, but quickly turned higher, making a new short term high at 1366. This completed wave 5 from last Thursday’s 1313 low. After making that new high, the market turned lower, dropping to the 1356-1357 support. After bouncing around that support, the market put together a small rally towards the close, getting back to 1365.

The move up this morning was a continuation of wave 5 from Friday, still staying within the model range. The drop back to 1356 may turn out to be the extent of the corrective wave, or become wave 1 of a further correction. From 1356, the market completed a 5 wave sequence back to 1365.

The market should pull back tomorrow, having completed a 5 wave sequence. If the market breaks through 1356, a further pullback would be expected. Support remains at 1326-1323, and then 1315-1313. If the market holds 1356, 1356-1365 would become wave 1 of a 5 wave sequence higher. Projections for wave 3 of that sequence would be first 1368, and then 1374-1382. If wave 3 terminates at 1368, wave 5 should occur only slightly higher. The market would then seem to be setting up for a further drop, possibly forming a semi-inverted corrective wave from the 1366 high. If wave 3 carries to 1374-1382, the market could be headed much higher.

I see 1365 as the termination point of wave 3 from 1306.62. The market would now be in wave 4, or wave 5 from that point. My target for wave 5 is either 1393, or 1475-1480, depending on how this plays out. Either of these scenarios would require the market to still correct further from 1365. If it does not, the wave structure may be slightly different than I currently have, but the targets would remain the same.

Weekend Outlook 07/01/12

I have to admit, there were times this week when I was more than a bit perplexed. The wave structures from the 1306.62 low have been extremely complex. These wave structures are somewhat difficult to follow as the wave is in progress, but become clear at the termination points. At these times I rely on my wave projections, support/ resistance lines, and the longer term wave structure to interpret the wave in progress. Although the waves were confusing, these tools helped me to stay on the right side of the market for most of the week.

The week started out with a misstep for me. On Monday I was looking for a continuation of the rally that had started the previous Friday. I had been interpreting the move from 1307, to 1363, as 3 completed waves of a 5 wave sequence that would complete wave 3 from 1267. On Thursday the market had fallen to 1324, and this seemed like wave 4 of that sequence. I had 1310.51 as the end of wave 2 from 1307, both of which would become important soon.

 Instead of moving higher, the market started the week with a dramatic drop. The market gapped down at the open, and then continued to fall throughout the morning, hitting 1309 before rallying back to 1320 near the close. By breaking through 1310.51, my wave count was incorrect, but by holding above 1307, it kept open the possibility of this still being part of wave 3 from 1267. It now appears that the drop was the final stages of a semi-inverted corrective wave 2 from 1327.28. The rally to 1320 would become wave 1 of a 5 wave sequence that would play out for the remainder of the week.

The market pulled back again at the open on Tuesday, coming within a point of Monday’s low. Again it appeared my bullish count was in danger, but 1309 held, and the market embarked on a pretty impressive two day rally that lifted the SPX to 1334. After the two-day rally, I once again was expecting a continuation on Thursday. Once again the market gapped down, dropping through the 1326-1323 support, and down to the 1315-1313 support. While a corrective wave was not unexpected, the severity was. At this point I was almost certain that 1310 would be taken out, and then 1306, putting my bullish count in jeopardy. But after hitting 1313, the market found support. The wave structure of this down move was the only thing that kept me positive, with the waves contracting, signaling a reversal was fairly likely. The reversal did come, moving the market back above 1326-1326, and nearly erasing the day’s losses.

On Friday the rally continued, with the market moving up some twenty points at the open and continuing higher from there. When all was said and done, the SPX had reached 1361.63, up over 52 points from the week’s low.

I had remained bullish throughout the week, even though the action at times was decidedly bearish. Trusting my model kept me on the right side of the market.

After Thursday and Friday, it has become easy to become bullish, just as it was easy to be bearish during the beginning of the week.

When the market hit 1422, I said a 5 wave sequence from 667 had completed, and the market would undergo a substantial correction. That turned out to be true, as the market dropped to 1267. At 1267, I said a 5 wave sequence had completed from 1422, and the correction had most likely ended. So far that seems to be the case.

From 1267, two waves have completed. Wave 1 ended at 1335.52, and wave 2 at 1306.62. It appears 3 waves have now completed from 1307, at 1327.28, 1309.27, and 1361.63. Wave 2 turned out to be a semi-inverted corrective wave, during which the market reached a high of 1363.46. My target for wave 3 had been 1365.

From here, I would expect a corrective wave 4 from 1362, probably down to 1345. My target for wave 5 of this sequence has been 1393, but there is a secondary target at 1475-1480. The projections at the moment are pointing to the latter, but I will keep both targets for the moment. Given the complexity of the waves recently, many scenarios are still possible, making either target still viable.

Support is at 1345, 1338, 1326-1323, and 1315-1313. There is a cluster of resistance between 1387, and 1398. I have three main scenarios at the moment.

Scenario 1 would have the market pulling back to 1345, then staging a powerful rally to 1475-1480. This could happen with only minimal pullbacks along the way.

Scenario 2 has the market falling back to the 1313 level, and then moving up to complete wave 5 at 1393.

Scenario 3 is bearish. There is a possible count that has 1362 as the termination point of a 5 wave sequence from 1267. This scenario will remain until the market moves above 1365.