Weekend Outlook 07/08/2012

The SPX entered this week having come off a strong two day rally from 1313 to 1362. The rally continued at the open on Monday, as the index reached 1366.35 before pulling back to 1355.70. The market then continued the rally, and by midday Tuesday, the index stood at 1374.81. This completed a 5 wave sequence from 1313, and what I currently see as wave 3 from 1306.62.

From that point the market turned lower, dropping to 1370 Tuesday afternoon, and then falling to 1363 Thursday morning. Thursday afternoon saw the market trying to recover, making it back to 1374 before falling into the close. Friday the market opened sharply lower, and continued down from there, as the SPX fell to 1348.03. The market then rallied back to 1356 into Friday’s close.

I continue to see 1266.74 as the completion of a 5 wave sequence from 1422.38. This means the market is now forming a 5 wave sequence to the upside, which should eventually take the market back above 1422. From 1267, the market has thus far completed 2 waves of that 5 wave sequence. Wave 1 terminated at 1335.52, and wave 2 at 1306.62. Wave 3 from 1267 is now in progress, and my current count has wave 3 of 3 terminating at 1374.81. Wave 4 of 3 may have terminated on Friday at 1348.03.

Although I am still quite confident that the market is still working on a 5 wave sequence up, and that sequence should carry above 1422, the shorter term count is less clear. My current count would require the current correction to continue down to about 1318, but I view that as highly unlikely. It is more likely that some kind of complex corrective wave is forming, and the market is set to move higher from the 1348 low put in Friday.

My long term targets remain the same. I see 1393, or 1475-1480 as the termination point of wave 3 from 1267, with wave 5 completing at 1426, or 1497.

Even though the short term wave structure could resolve itself in several ways, it is still possible to follow the individual 5 wave sequences, giving us an idea of where the market is headed. Looking at the corrective sequence from 1374, I see a 5 wave sequence which contained waves of diminishing lengths, which ended at 1348, right at a support level generated by the up sequence from 1309 to 1374. The move up Friday afternoon carried above the wave 4 high of 1353.11. This would point to the market moving higher from 1348. I would expect this wave to carry first to 1378, and then possibly the 1393 level I have been target for some time.

Resistance should be at 1357-1358, 1367, and 1378. Support should be at 1349, 1333-1336, 1323-1326, and 1313-1315.

Friday's Market 07/06/12

It was another down day for the market, as the sell-off from Tuesday’s high continued. The market gapped to the downside, very quickly reaching the 1356 level I mentioned yesterday as the initial downside target. After a brief pause, the selling continued. When the market hit 1349, it tried to rally, but that was brief. After moving up to 1353, the market dropped to the low of the day at 1348.03. The market then rallied to the close, making back right to the 1356 level.

The sell-off from Tuesday’s 1374.81 high is best seen as a 5 wave sequence to 1348.03. The drop to 1363 on Thursday was wave 1, followed by an inverted corrective wave 2, and then waves 3, 4, and 5 bringing the market to 1348. The afternoon rally carried the market back above the wave 4 high of 1353.11, which could be a positive going into Monday.

It now appears that the wave 3 high from 1306.62 occurred at 1374.81, and not at 1365.35. Although it appears likely the market will continue to rally on Monday, a further correction would fit the model better. It is possible that a different wave structure has been unfolding since 1336 high from 1267. For now I am still looking at 1393 or 1475 as targets for wave 3 from 1267. Support is at 1338, 1326-1323, and then 1315-1313. Resistance remains at 1356-1359, 1367, and 1393.

I will address this in more detail over the weekend.

Thursday's Market 07/05/2012

Well, I was completely wrong about where the market was headed today. I was looking for a move higher, initially to 1378, and then possibly 1393. Instead, after a small move higher at the open, the market headed lower, and stayed there throughout the day.

After opening slightly to the upside, the market quickly reversed course, and headed lower to 1368. After a short consolidation, the market headed lower again, bottoming at 1363. The market did rally off that low, moving back above 1371 before headed back down to 1368. Another move to the upside took the market back near break-even to 1374. The market could not hold this level, and quickly sold off again, dropping below 1368 near the close.

I have become concerned recently with the projections becoming increasingly higher. The original projections for wave 3 from 1267 were 1393, and 1475-1480. Projections for the smaller waves have been higher, and higher, and have begun to exceed the 1475-1480 level, which is not realistic. I was looking for a further correction after hitting 1365, but that did not materialize. A correction back to the 1325-1326 level would have been ideal. The other possibility is that I have missed a wave at some point, just as I did on Tuesday. After getting the 5 wave sequence from 1355 to 1365 correct, I saw the move after that as waves 1, 2, and 3 of another sequence, when actually 1374.81 completed another 5 wave sequence from 1355.

There are several possibilities for the move today, one of which is that the market is undergoing a complex correction from 1365. If it is, we may see that correction to 1325-1326 I was looking for earlier. For now, I will look at support and resistance, and projections for an up move and a down move. To the upside, there is resistance at 1374, 1392, and 1393. To the downside, support is 1367, 1359, 1356, and 1326-1323. If the market moves higher, the initial targets are 1374, or 1382. The downside projection is 1356-1359.

Longer term, this does not change my outlook of 1393, or 1475-1480 as the next SPX targets.