Tuesday's Market 07/24/12

Well, I couldn’t have been more wrong the last two days. I was expecting the market to move higher, to 1397-1398, and instead the market has undergone a substantial sell-off. Although I have apparently misread several waves during this sequence, I still believe the market may stage a rally to 1395 that would complete wave 3 from 1367.

On Monday, the market opened sharply lower, dropping to 1338 before rallying in the afternoon. This rally took the SPX back near the 1357-1357 resistance level, reaching 1353. The sell-off continued into today, with the market moving lower, down to 1340, during the morning. After a small rally attempt to 1345, the market headed lower again. The market paused momentarily after moving below 1332, the SPX put in the low of the day at 1329.24. This level was close to the 1323-1326 support level, and above the previous 1325.41 low I have labeled as wave 2 of 3 from 1267.

From the recent uptrend high of 1380.39, the market has completed a 5 wave sequence at today’s low of 1329.24. This sequence contained an inverted corrective wave 2, which accounted for most of the damage the last two days.

The market is again at a critical level. If it can hold above the 1325.41 low, it still appears that the market is in wave 3 from 1267. The entire move from 1325 to 1380 can be seen as wave 3 of 3, and the move to 1329 wave 4. Given this count, wave 5 still projects into the 1393 level I have been targeting for this wave.

Since I have been wrong several times during this wave, I have gone back and tried to look at as many possibilities as I can. Looking at all these possibilities, there is a count that would make 1380 the termination point of wave 5 from 1267. This sequence would be 1363.46-1309.27-1374.81-1325.41-1380.39. I still don’t see 1267 to 1363.46 as a 5 wave sequence, as it must be for this count, but since this entire sequence has been difficult to identify, I will keep that as a possibility. If the market breaks below 1325.41, this would seem the most likely scenario.

The market is currently right at the 1338 support/resistance line. Resistance is now at 1357-1358, 1367, and then 1387-1397. Support is at 1323-1326, and then 1313-1315.

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.