Wednesday's Market 07/25/12

The market fell slightly to the downside near the open, and then continued the late afternoon rally from yesterday, moving up to 1343.98. This completed a 5 wave sequence from the 1329.24 low, and from there the market moved pretty quickly to the downside. By late morning the SPX hit 1331.50, and then attempted another rally. That rally fell just short of the morning’s high, from which point the market fell back to 1335.87 before rising slightly into the close.

As I mentioned above, the market completed a 5 wave sequence at 1343.98. One of the support lines generated by the sub-waves of that sequence was at 1331.2. The subsequent drop from 1343.98 ended at 1331.50. This completed a 5 wave sequence, as did the move higher from that point to 1343.77. Another support line generated by the move from 1329 to 1344 sits at 1336.2, with the move down from 1343.77 terminating at 1335.87. This also completed a 5 wave sequence.

It still appears that the market put in wave 4 of 3 from 1267 at 1329.24. The target for wave 5 remains around 1395. If the market moves below 1329, it seems most likely that the market completed a 5 wave sequence from 1267 at 1380.39.

Today’s late afternoon low of 1335.87 appears to be the completion of a 5 wave sequence. If the 1329.24 low was wave 4 of 3, the market should move higher from this point, with a near term target of 1346, or 1356. Resistance is at 1338, 1341, and 1356.

If the market moves lower, there is a cluster of support from this level, to 1331, which marks the lowest support level generated by the wave from 1329 to 1344. If the market breaks below that, support is at 1323-1326, and 1313-1315. In my mind a fall below 1329.24 low probably means a 5 wave sequence from 1267 has been completed.

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.