Weekend Outlook 08/11/12

The market traded in a fairly narrow range this week, much less than the previous week’s range. Having closed out the week at 1391, the market opened higher on Monday, reaching a new uptrend high of 1399.63, before pulling back to 1394. Tuesday saw another strong opening, and another new uptrend high of 1407.14. By Wednesday morning the market had fallen back to 1396, and then staged a rally that lasted into Thursday, bringing the market back up to 1406. However, by Friday’s opening, the market had dropped once again to 1396. A move higher from there to 1402 was followed by another sell-off to 1397, and then a fairly strong rally into the close left the market at 1406 once again.

In last Weekend’s Update, I said 1391.74 was the termination point of wave 3 from 1267, with wave 4 possibly ending at 1354.65. I pointed out that this scenario gave a target for wave 5 of 1335-1375, slightly off from the 1426 or 1497 target I was looking for. During this past week I also commented on the fact that with the down waves consisting of waves of increasing lengths, and the up waves composed of waves of diminishing lengths, a move to the downside was possible, and that that down move may bring the current target back into line with the 1426 or 1497targets. Instead, it appears the market has formed a more complex corrective wave, which accomplished the same thing.

1391.74 looks like the termination point of wave 3 of the ongoing move from 1267. The initial move down to 1354.65 now appears to be wave 1 of a corrective wave 4 from 1391.74. Wave 2 of this wave carried the market to the new uptrend high of 1407.14. Wave 3 then completed on Wednesday at 1396, with the move back up to 1406 on Thursday completing wave 4. The ensuing move down to 1395.62 on Friday completed wave 5 of the corrective wave, and wave 4 from 1267.

This scenario projects wave 5 to complete above 1475, with 1497 remaining my target for this wave. If this scenario plays out, I would expect a move higher from Friday’s close, initially to the 1410-1414 level. This projection is based on the sub-wave structure from the partially completed wave from 1395.62. This would complete the first wave of wave 5 from 1267.

Thursday's Market 08/09/12

The market moved slightly lower at the outset of today’s trading, before moving higher, first to 1404, and then to 1405.95 after a small pullback. The SPX sold off from there, dropping below 1400, to 1398, before attempting to stage another rally. This rally fell just short of making it back to 1405, and another pullback took the market to 1402 near the close.

Yesterday I mentioned the 1405 level as important for today, and it turned out to be. The first rally to 1405.95 completed the 5 wave sequence from Wednesday’s 1396 low. Another 5 wave sequence completed as the market fell to 1398, and the rally back to 1404.69 also played out as a 5 wave sequence.

The market appears to be looking to stage a breakout in one direction or the other, but short term there are a few danger signs. Since the 1354.65 low last Thursday, the up sequences have been forming with waves of diminishing length, while the down sequences have displayed increasing wave lengths. This usually means the market will break out to the downside. If the market does break out to the downside, I would look for it to move down between 1390, and 1370. There is a cluster of support down to 1387, with support then moving to 1384, and 1376. Those would seem to be likely levels for the down move to terminate. A move to that area would likely mean a subsequent move to 1426 would complete a 5 wave sequence from 1267.

If the market breaks out to the upside, I still look for a move to between 1435, and 1475. That projection should narrow as the wave starts to complete.

Wednesday's Market 08/08/12

I was looking for a move up from yesterday’s close, but the market started to the downside today, dropping to 1396.13 near the open. The market rallied from there, turning positive for the day, and moving up to 1404.14. That was as high as the market could get, turning lower after that, and pulling back to 1399.86. Another rally towards the close brought the market back near 1403, before fading slightly into the close.

The drop to 1396 at the open stayed within the parameters of the 5 wave sequence from Tuesday’s 1407 high, although it was slightly more than I had anticipated. This probably discounted the scenario I laid out yesterday, and bringing back into play the count I outlined on Monday. This results in a 5 wave sequence being completed from 1354.65 at 1407.14. A 5 wave sequence then completed at 1396.13, and possibly 4 waves of a sequence completing to the upside today. The target for this wave 5 is around 1405, below the uptrend high of 1407. A move above that would signal a resumption of the uptrend, with resistance at 1426.

It is possible that the market will move lower, below today’s 1396 low. This would most likely carry back down between 1390, and 1370. If the market does fall between those levels, one more move to the upside would still be required. The target for that would be 1426, or above, which puts us right back at the original 1426 target.