Medium Term Update 07/18/12

Up until this point I have kept my current count from the 1266.74 low intact, even though I have had some reservations about it, which I have expressed from time to time. The main problem with this count has been the increasingly higher projections it has been giving with each completed wave. I have kept this count because I better one has not presented itself until now. At this time I feel a better option, or at least an equally good one, has appeared.

 I’ll start by reviewing my current count from 1267. This begins with the completion of a 5 wave sequence from that low at 1335.52. This is wave 1 in red on the accompanying chart. A corrective sequence to 1306.62 has been labeled wave 2 in red. A five wave sequence to 1327.28 completed wave 1 of a smaller degree, which is labeled in white. Wave 2 of this sequence I had labeled as a semi-inverted corrective wave, which terminated at 1309.27. Five separate 5 wave sequences then completed white wave 3, and another 5 waves down completed wave 4. That would have the market currently in white wave 5, which would complete wave 3 in red, of a 5 wave sequence from 1267.

The main issue I have had with this entire sequence from 1267 is the move from 1306.62, labeled wave 2 in red, and 1309.27, which is labeled wave 2 in white. From 1306, I have white wave 1, followed by wave 1 if the semi-inverted corrective wave in green, followed by waves 1 through 5 in yellow, which completed wave 2 in green of the semi-inverted corrective wave. This is followed by waves 3, 4, and 5 of the semi-inverted corrective wave in green, which terminates at wave 2 in white, or 1309.27.

While this count satisfies my model, it seems a bit convoluted. By simply using waves 1 through 5 in yellow from 1306.62, my model is also satisfied. I have refrained from using this count because the move from 1306.62 to yellow wave 1 doesn’t break down easily into a 5 wave sequence. However, this appears to be the simpler, and at the moment, better solution.

I’ve labeled this possibility as A-B-C-D-E on the chart for clarity. The move down from 1363.46 to 1309.27 is also interesting. A clear 5 wave sequence formed to 1324.41, and after a short rebound the market dropped to 1309.27. This entire wave breaks down into a 5 wave sequence the best, but for this discussion, I’ll also assume that it breaks down into two separate 5 wave sequences.

On the next chart I have replaced all the numbers with X’s to mark the 5 wave sequences I have identified.

And on this chart, I show the possible new count. This count would put the market in wave 5 from 1267, which projects to 1393.

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.