Tuesday's Market 08/21/12

This morning we saw the breakout to the upside I had talked about yesterday. After a few minutes of trading, the SPX had reached nearly 1423, finally surpassing the previous high from 667 of 1422.38. The market continued higher, reaching 1426.68 by mid-morning. That would be the high for the day, as the market underwent the steepest sell-off it has seen for awhile. With only a few pauses, the SPX fell to 1410.96, before moving higher into the close.

The action today was interesting, and possibly very significant. For quite some time, I have been targeting two possible levels for the termination of the 5 wave sequence from 1267; 1426 and 1497. The wave structure recently has been less than convincing for a major push higher to 1497, although up until today, the market had managed to avoid putting itself in a position to top at 1426. In fact, the DJIA may already have topped.

I have been looking for alternate scenarios for a couple of weeks. The DJIA has been in a topping formation, but the SPX seemed to be trying to avoid a top here, and move ahead to 1497. With the market hitting 1426 today, a level I have been looking at almost since the market bottomed at 1267, and the subsequent sell-off from there, makes it time to seriously consider the market forming a top very soon.

Today, I will start with the DJIA. Some of you may remember that when the SPX was at 1267, and there was some degree of uncertainty as to future direction, I used the wave structure of the DJIA to make my case for the market moving higher.

On June 4^th, the DJIA bottomed at 12035.16. That index completed a 5 wave sequence at 12961.30. This can be broken down into sub-waves as 12035.16-12649.86-12398.16-12898.86-12450.40-12961.30. Wave 2 was an inverted corrective wave with the structure 12961.30-12492.33-12977.57-12521.88-13117.70-12780.42. Wave 3 of this sequence carried the market to 13215.90, and wave 4 completed at 13095.18. Today’s move to 13330.68 satisfies my model for the completion of a 5 wave sequence.

I have posted an alternate scenario on the SPX 60 Minute chart that would put us at a top. The count is slightly different than the DJIA count, but the result would be the same. This count has waves 1-3 from 1267 terminating at 1335.52, 1306.62, and 1363.46, respectively. Wave 4 was then the complex corrective wave, with 4 waves being completed. Wave 4 of this wave terminated today at 1426.68. Wave 5 is underway now, which would complete wave 4, and should then be followed by wave 5 higher. If the corrective wave 4 terminated at today’s low of 1410.96, I would expect wave 5 to end around 1429, only slightly higher than today’s high. If this corrective wave moves lower, it is possible wave 5 would be a failed wave, which means it would not surpass the 1426 high of today.

The SPX has formed some very complex waves during this advance, and it is possible that it has completed a 5 wave sequence from 1267, as the DJIA has. This corrective wave 4 could carry as low as 1395, and still keep this scenario intact. If the market moves below that level, it is likely the wave 5 top occurred at 1426. If wave 4 carries down near 1395, the failed wave 5 may only make it back to 1406.

I see this as the completion, or near completion, of wave 3 from the 667 lows. Given the wave structure thus far, wave 5 may only make it slightly above todays high.

Monday's Market 08/20/12

The market started the day moving slightly lower from Friday’s close, dropping below 1415, before rebounding to 1417. The selling continued after that bringing the market down to 1412. The market tried to move higher through the rest of the morning, and into the early afternoon. After making it back up to 1417, the market fell back once again to 1415. The market then rallied to 1418, before falling once again to 1416. The market again tried to rally into the close, making it back to 1418.

Today’s drop from Friday’s late afternoon high of 1418.71, to 1412.12, unfolded in a 5 wave sequence. From that low, it appears the market began a 5 wave sequence to the upside, with wave 1 terminating at 1413.31. Wave 2 played out as an inverted corrective wave, which terminated at 1414.73. It appears the market then completed waves 3, and 4 of that sequence. Wave 5 of this sequence should terminate at 1420-1421.

It now looks like Friday afternoon’s 1418.71 high completed a 5 wave sequence from 1395. This morning we saw a 5 wave corrective sequence, and we should now be ready to move higher. As I mentioned above, the market should complete a sequence at 1421-1421, with my next target at 1430-1441.

Near term support should be at 1411, 1407, and 1402.

Thursday's Market 08/16/12

A higher opening this morning lifted the market to 1408.65. From there, the market moved lower, dropping to 1404, before starting a prolonged rally that lasted into late afternoon. Once it broke back above 1408, the market continued on to 1410. After a minor pause, the rally resumed, moving the market to 1413, which was followed by another small pause. By late afternoon, the market stood at 1417.44. The market dropped back to 1414 near the close, before moving higher into the close.

Yesterday I said I was looking for the market to move initially to 1412, undergo a very slight pullback, and then continue on to 1418-1420. This was based on a 5 wave sequence from 1400.6 completing yesterday afternoon. That sequence actually ended this morning at the open, with wave 2 forming an inverted corrective wave, which carried the market to 1413.59, before the slight pullback to 1412.41. This altered the projection I gave yesterday slightly, but still very close. The 5 wave sequence from1400 then ended at today’s high of 1417.44. A 5 wave sequence to the downside from there has completed.

This now completes a 5 wave sequence from 1395.62, which I see as wave 1 of wave 5 from 1267. Having finally broken out of the narrow trading range it had been in, it now seems likely that wave 5 from 1267 will carry to 1497.

The next short term upside targets are 1421-1423, and 1427-1435. I have said before that the next move could be fairly swift, meaning the pullbacks could be minor. With that in mind, a 5 wave sequence completed today from 1417.44 to 1414.36, which also reached a support level based on the 1395-1417 sub-waves. The market could very well move higher from here.

Support for the corrective wave from 1417 should be 1414, 1411, 1407, 1402, and 1399.