Weekend Outlook 07/22/12

In my Medium Term Update a few days ago, I outlined a scenario that would put the market in wave 5 from 1267. While that scenario is still a possibility, the more likely scenario remains that the market is currently in wave 3. The wave structure at the moment pretty clearly points to this wave terminating around 1397, very near the 1393 target I have had for this wave. I will attempt to explain in detail my analysis of the wave structure from the 1266.74 low to the present. I will also elaborate on what I expect from here, both for the short term, and for the longer term, including my expectations for waves 4, and 5.

Since it is still a possibility, I will begin with a recap of the first scenario, in which this would be wave 5. Wave 1 took the market from the 1266.74 low, to 1335.52. This wave broke down into 5 sub-waves, 1266.74-1280.11-1272.78-1296.34-1294.96-1335.52. These waves yielded a model value of .9929. Using these sub-waves, I was also able to project wave 3 to occur at 1393, or 1475.

Wave 2 of this sequence turned out to be a complex semi-inverted corrective wave, which eventually terminated at 1309.27. This wave can also be broken down into 5 sub-waves, 1306.62-1363.46-1324.41-1337.82-1309.27, with a model value of .9959. Wave 3 followed, as the market moved to 1320.29-1310.30-1334.40-1313.29-1374.81. This sequence gives a model value of .9999. With this being wave 3 I expected this wave to carry to my wave 3 projection of 1393. Although 1375 has this within my model’s parameters for wave 3, I had expected it to carry closer to the 1393 projection. Wave 4 followed, breaking down into a 1346.65-1361.54-1336.27-1344.26-1325.41 sequence, giving a model value of .9961. These two waves will become important later as I discuss my scenario having the market currently in wave 3. Given the structure outlined above, wave 5 would be expected to terminate at 1383-1384.

 Usually at termination points of waves, projections start converging into a very narrow range. At this point, I have yet to see that with this scenario. Although this scenario is possible I see it as a low probability scenario at the moment. The preferred scenario still has the current move as wave3 from 1267, with that wave possibly nearing an end.

In this scenario, waves 1, and 2 remain the same. The difference in the two scenarios involves the next set of waves, which I have numbered as 3, and 4 above. This scenario would have this set of waves as wave 1 of 3 at 1320.29, followed by a complex inverted wave 2 with the structure 1310.30-1334.40-1313.29-1374.81-1325.41. This wave configuration has a model value of .9959.

So, for this scenario the count would be wave 1 at 1335.52, wave 2 at 1309.27, wave 1 of 3 at 1320.29, and wave 2 of 3 at 1325.41. The market then completed a 5 wave sequence from 1325.41 to 1361.32, with sub-waves 1338.42-1334.36-1347.63-1345.26-1361.32, and has a model value of .9925. This would appear to be wave 3 of 3, with wave 4 of 5 completing at 1345.07.

Wave 5 appears to be forming a rather extended 5 wave sequence, with waves 1, and 2 completed. Wave 1 of 5 sub-divided into 1354.82-1354.05-1359.04-1357.62-1360.78, giving a model value of .9999. Wave 2 was another complex inverted corrective wave, similar in structure to the wave 2 from1320.29 to 1325.41. This wave broke down 1358.33-1365.36-1358.96-1380.39-1362.19 from 1360.78. This sequence gives a model value of .9948.

As I mentioned earlier, at this point, I would expect projections to be converging into a narrow range. Given this scenario, that is exactly what is happening.

Wave 1 Sub-waves: 1280.11-1272.78-1296.34-1294.96-1335.52

Optimal Projection: 1393

Wave 3 Partial Waves: 1320.29-1325.41-1361.32-1345.07

Projected Wave 5: 1397-1434

Wave 3 of 3 Sub-waves: 1338.42-1334.36-1347.63-1345.26-1361.32

Projected Wave 5: 1386-1412

Furthermore, the sub-wave sequence of wave 1 of 5 of 3, projects a level of around 1382 for wave 3. A small correction from that point, near 1371-1379, would project wave 5 at 1397.

To summarize the above discussion, I would expect a move higher, near 1382 from Friday’s 1362 low. After a small pullback to 1371-1379, I would expect the market to move up to 1397-1412. This would complete a 5 wave sequence from 1309.27, and wave 3 from 1267.

My projections for wave 5 from 1267 remain either 1426, or 1497. If the market completes wave 3 at 1397 as expected, a small pullback for wave 4 would point to the 1497 target. A somewhat larger corrective, to around 1365, would point to 1426.

Thursday's Market 07/19/12

The market gapped up at the open, and continued to a new uptrend high at 1378.23 in the first few minutes of trading. The market then turned lower, giving up all of the early gains, and then some, as the SPX dropped to 1371.21. Another rally followed the pullback, and the market soon found itself once again in new uptrend high territory. This time the SPX made it to 1380.39, before pulling back again. The market again dropped near the 1372 level, and then staged a choppy rally back near 1378 into the close.

The early morning run up, and subsequent drop, appears to have been part of a semi-inverted corrective wave from Wednesday afternoon’s high. The following move to 1380 completed a 5 wave sequence from 1368.70, and wave 3 from 1325.41. We may have seen wave 4 with the pullback to 1372. If so, the market should be in wave 5, which could complete a 5 wave sequence from 1267.

In Wednesday’s Medium Term Update, I outlined a scenario for a 5 wave sequence from 1267 being close to completion. The current target for that wave would be between 1383, and 1397. If my current count is correct, I can narrow that forecast to between 1383 and 1384.

I will say again that the wave structure lately has been very complex, and there is a scenario in which this would complete wave 3 from 1267, and not wave 5. The projections for each are similar, with the wave 3 scenario most likely terminating between 1390 and 1391. This should clear up shortly, but as stated, the projected highs for each scenario are similar.

If the market moves up to 1383-1384, and then drops below 1372.33, it is most likely that a 5 wave sequence from 1267 has completed. Support is at 1367, 1357, and 1333-1336. Resistance is at 1383-1384, 1390-1391, and 1426.

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.