Wednesday's Market 08/22/12

The market opened slightly lower, and soon the selling accelerated bringing the SPX down to 1408.51 after a few minutes of trading. The market then moved higher, rallying back to 1413. The market sold off again, this time falling to 1408. After another rally to 1410, the market fell to the low of the day at 1406.78. The market then rallied in stair step fashion through the afternoon, first to 1408, then 1410, followed by 1413, until reaching the high of the day at 1416. The market then fell slightly, back to 1413 near the close.

 

Yesterday the market completed a 5 wave sequence to the downside after hitting a new uptrend high at 1426.68. This morning the market completed another sequence from 1427, forming a contracting wavelength sequence. As I have noted in the past, this is generally a signal of a strong move in the opposite direction, and this was no exception, with the market rallying just less than ten points from the low. This rally unfolded in a 5 wave sequence, which terminated at 1416.12.

 

Today’s low of 1406.78 seems to complete wave 5 of the inverted corrective wave 4 from 1267. We should now be in wave 5 from that low. The rally to 1416 satisfies my model for wave 5, which fits the failed wave 5 scenario I mentioned yesterday. The upside limit for this wave could still carry the SPX higher from here, most probably taking out the 1426 uptrend high, and possibly higher. I do not see this wave making it up to my next target level of 1497.

 

Once wave 5 has completed, we can start looking at the downside potential for the corrective wave. As I see this as the completion of wave 3 from 1267, there are still possibilities for the market to continue higher. Wave 2 of this sequence was not a complex corrective wave, so the odds favor wave 4 being complex. This could mean an inverted corrective wave, which would only require a minor correction. I will discuss this further as the wave develops.

 

 

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.