Weekend Outlook 07/29/12

It was another very interesting week for the markets. I had been expecting the market to begin the week to the upside, working its way towards my 1393 target. Instead, it sold off rather sharply at the outset, dropping to 1329.24 by Tuesday afternoon. This kept the market above the previous low of 1325.41, and the market started to rally off that low. The rally continued on Wednesday, and kicked into high gear on Thursday with a gap to the upside. The market worked higher the remainder of Thursday, and then carried the rally into Friday. By Friday afternoon, the SPX had reached 1389.19, a rally of nearly 60 points from Tuesday’s low.

This week’s rally took the market to the 1387-1397 cluster of resistance, and within 4 points of my target for wave 3 from 1267. Last week I outlined my favored scenario in which we started the week in wave 4 from 1309.27, of wave 3 from 1267. Tuesday’s 1329 low marked the termination point of wave 4, and then the market completed a 5 wave sequence at the week’s high of 1389.19. This appears to be the end of wave 5, and thus wave 3 from 1267.

I continue to see this as a bull market from the March 2009 low of 666.79. The market formed a 5 wave sequence from that low to 1422.38. I see this sequence as 1219.80-1010.91-1370.58-1074.77-1422.38. This then became wave 1 of another sequence. Wave 2 was the recent correction to 1266.74. I have two possible projections for wave 3 of this sequence, 1426, and 1497.

Wave 3 of this sequence is unfolding now, with at least two, and possibly 3 waves having been completed. Wave 1 completed at 1335.52. Wave 2 was a complex semi-inverted corrective wave which terminated at the 1309.27 low. Wave 1 of this third wave completed at 1320.29, and was followed by a complex inverted corrective wave which took the market to a high of 1374.81, before terminating at 1325.41. Wave 3 reached 1380.39, with wave 4 completing with Tuesday’s low of 1329.24. With the completion of the 5 wave sequence on Friday at 1389.19 the market has most likely completed wave 5, and wave 3 from 1266.74.

 There is still the possibility that the market will move slightly higher before actually completing this wave. If it does, it should remain within the cluster of resistance at 1387-1397. For the moment, I will assume the wave has completed, and discuss what we might see next from the market. This next move higher should take the market to either 1426, or 1497. At the moment, 1497 seems the more likely. The extent of this corrective wave should give us the answer. A correction that terminates between current levels, and 1368, would point to 1497 as the next target. If the correction moves lower, between 1350, and 1330, 1426 would be my target.

Support is at 1382-1385, 1376, and 1352. Resistance is at 1387-1397, and 1426.

Friday's Market 07/27/12

Yesterday I said I would be looking for a higher opening, to 1366-1367, a pullback to perhaps 1359, and then on towards 1393. The market did open higher, reaching 1367.85 at the open, and then continuing on to 1368.86 before experiencing a minor pullback. After that, it was almost straight up the rest of the day. By midday, the market had risen to 1377.41, and then spiked up to 1388. After a small pullback, the market reached the day’s high at 1389.19, and then dipped to 1384.49 before the close. This was within the cluster of resistance at 1387-1397 that I spoke of yesterday.

The market has been forming a nested wave sequence from the 1329.24 wave 4 low, and that sequence completed today at 1377.41.Then, with that being a wave 1 from 1329, the market completed another 5 wave sequence at 1389.19.

I have been targeting 1393 as the termination point of wave 3 from 1267. Today the market moved within our target range for that termination point. 1389 completed a 5 wave sequence from 1329, and is within my model’s range for wave 5 from 1309, and wave 3 from 1267. It is possible that the market may work slightly higher, creating smaller and smaller waves, but I think this is the end of the sequence.

If this is the end of wave 5, there are three scenarios. My targets for wave 5 from 1267 have been either 1426, or 1497. If the corrective wave 4 terminates between current levels, and about 1368, 1497 would be my target. If the correction carries further, to between 1350, and 1330, 1426 would be the likely target. There is also the possibility that this was the end of wave 5 from 1267.

I will address this in more detail over the weekend.

Thursday's Market 07/26/12

As I anticipated, the market moved higher at the open, surpassing my target of 1356. After a gap open, the market continued past the 1357-1358 resistance level, and rose to 1361.51. That level did not hold, however, and the SPX dipped to 1351.48. After that the rally continued, with the market first reaching 1359.10, and then to a new intra-day high at 1363.13. From there, the market moved slightly lower into the close.

The move today continued the rally from Tuesday’s 1329.24 low, in what I consider to be wave 3 of 5 from 1267. This wave should terminate at, or near, 1395-1397.

Short term support is at 1357-1358, 1323-1326, and 1313-1315. Resistance is at 1367, and then 1387-1397.

Very short term, it appears the market is forming a complex wave structure from the 1329 low. I look for a move higher on Friday, with a target of 1366-1367, followed by a pullback to perhaps 1359. This should set the market up for a move to my 1393 wave 3 target.