Wednesday's Market 07/18/2012

After opening slightly higher, the market moved down to 1358.96. From that point the market staged a pretty powerful rally, moving above the previous uptrend high of 1374.81, making it to 1375.26. The market then pulled back, dropping to 1368.70, before rallying back to 1373.77. After pulling back slightly, the market moved higher into the close.

Yesterday I mentioned the possibility of a complex corrective wave forming, and it appears that is what has played out the last two days. After rallying off the 1325.41 low, the SPX completed a 5 wave sequence for wave 1 at 1361.32. From there, an inverted corrective wave formed, first taking the SPX down to 1345.07, before the strong rally to 1375.26. 1345.07 marked the end of wave 1 of the corrective wave, with the move to 1375.26 creating a series of 5 wave sequences of ever diminishing length. This completed wave 2. Waves 3, 4, and 5 took the market to 1368.70, which completed the corrective sequence, and wave 2 from 1325.41.

  I would expect the market to continue higher from here. I would now expect waves 3, 4, and 5 to complete at, or near 1393. While I have been looking at 1393 to complete wave 3 from the 1267, there is a count developing that would complete a 5 wave sequence from that point. I hope to elaborate on this later tonight. Either way, 1393 looks like an important point. What happens from there could determine the longer term direction of the market. While I think the market may correct from that level, I do not see a move back down to 1267.

Resistance is at 1387-1397, and then 1426. Support is at 1367, 1357-1358, 1337, and 1323-1326.

Tuesday's Market 07/17/12

The market opened higher today, moving above the 1356.70 level I thought would signal a resumption of the uptrend. Very quickly, however, the market turned lower, moving below the 1351.83 level I thought would result in a further correction. After moving above 1361 after the open, the market dropped back to 1345. After hitting 1345, the market rebounded, moving back above the 1357-1358 resistance level, and after dropping back to test it, moved higher once again. The market moved above 1365 for the high of the day, before falling slightly into the close.

The move higher from 1325 has turned out to be, like every other move lately, more complicated than I had thought. It now appears that wave 1 terminated at 1333.91, and was then followed by an inverted corrective wave 2 that lifted the market to 1357.7, before ending at 1348.51. Monday’s move to 1357.26, and drop to 1351.38 completed waves 3, and 4. Waves 1, and 2 of wave 5 completed at the close on Monday, and Tuesday’s opening move to 1361.32 completed waves 3, 4, and 5, and the 5 wave sequence from 1325.

The move down from that high was a 5 wave sequence, and the rally to 1365 contained a 5 wave sequence which terminated at 1360.78, which became wave 1 of a larger degree sequence which ended at 1365.36. This sequence contains waves of diminishing lengths, which usually indicates a reversal.

I still see this as part of a wave sequence that will take the market to 1393, but it appears we may still be undergoing a corrective sequence that will have to be completed before we resume the uptrend. This could take the form of a semi-inverted corrective wave that should take the market back between 1345, and 1361, and after a short rebound holding below 1361, should terminate somewhere below 1345. The other possibility is an inverted corrective wave, which would mean a pullback holding above 1345, and then a move back above 1365, followed by another small pullback.

Short term support is at 1357-1358, 1337, and then 1323-1326. Resistance is at 1367, and then 1387-1397. A move up to the 1387-1397 resistance level should mean either wave 3, or wave 5 from 1267 has completed, with a corrective wave to follow.

Monday's Market 07/16/12

After having run up from 1325 to 1358 on Thursday and Friday, the market spent today trading in a narrower range, undergoing some apparent consolidation before the next move. The market made an initial drop this morning, completing a 5 wave sequence from 1358 at 1348.51, which proved to be the low for the day. A scenario is developing which would make 1393 the termination point of a 5 wave sequence from 1267, and 1348 is precisely the pullback needed for this scenario.

From that low, the market proceeded to form a sequence of 5 wave sequences making a series of lower highs, and higher lows. The market moved higher to 1357.26, lower to 1351.38, higher to 1356.70, and lower to 1351.83, before rising slightly off that low into the close.

The structure that has formed from the 1358 high indicates a powerful move is forthcoming, but has formed in such a way that leaves open the possibility of a breakout in either direction. A move above 1356.70 would indicate another move higher, with 1393 remaining the most likely target, and a break below 1351.83 most likely resulting in a strong move back to the downside.

Resistance is at 1357-1358, 1367, and 1387-1397. Support remains at 1338, 1323-1326, and 1313-1315.

I mentioned above that a scenario is developing in which a move to 1393 would complete a 5 wave sequence from 1267. Up until now I have been calling this wane 3 from 1267. Both scenarios are still possible, but I wanted to acknowledge the existence of both possibilities. Due to other commitments, I was unable to put out a weekend update as planned. Instead I will post a Medium Term Update in the next day or two that will outline each of the different scenarios.