Thursday's Market 03/21/2013

With the action of today’s market, I was quite prepared to throw in the towel on my “1538.57 will prove to be the low of this correction” statement. However, after reviewing my charts this evening, I will hold onto my towel for at least one more day. Although there is a very real possibility that the SPX will fall below that low, it is also a very real possibility that it will not. The rub is that in the medium term, taking out that low would be the more bullish scenario.

 

The market dropped at the open, falling below 1551, and remained lower throughout the day. After attempting to rally following the opening drop, the market fell further to 1548.41. A more sustained rally ensued, but after briefing rising above 1555, the market started another leg lower. It finally found a bottom at 1543.55, and rose above 1550 before falling into the close.

After yesterday’s high of 1561.56, the SPX formed a 5 Wave sequence into the 1548.41 low. The SPX then formed 3 additional 5 Wave sequences, one into the 1555.31 high, another into the low of the day at 1543.55, and then one more into 1550.79 high shortly before the close. With only 4 sequences discernible from the 1561.56 high, I do not believe that a full wave has completed from that point.

Several options are possible at this point, and I will start with the one that keeps intact Tuesday’s 1538.57 low. This is also the simplest resolution, and assumes that an inverted corrective wave completed at the aforementioned low, and that 4 Waves have completed from the 1561.56 high. The target for Wave 5 would be 1538-1540, and allows for the low to remain intact. If that low holds, we should see one more rally that probably will not exceed 1572. As I mentioned above, this would also be a medium term bearish scenario, as it would likely mean a 5 Wave sequence from 1074.77 has completed and Wave 3 from 666.79. A rather steep correction would be anticipated.

The alternate scenario assumes that 4 waves have unfolded from the 1563.62 high, with Wave 5 underway.  The target for Wave 5 would be 1495-1518. This could play out in several ways. If the market opens higher, I would expect resistance at 1553. This would complete an inverted corrective wave from the 1548.41 low, and would indicate waves 3, 4, and 5 to the downside are yet to come. It is also possible that the market completes a 5 Wave sequence from 1561.56 at 1538-1540, and then starts a larger degree sequence into the 1495-1518 target area. This scenario would allow for a much higher upside target.

 

 

If the market opens lower, look for support at 1538-1540. If the previous low of 1538.57 holds, look for one more rally up to 1572. If that low does not hold, look for a move to 1495-1518. If the market opens higher, look for resistance at 1553, and then a move down to 1495-1518.

 

Wednesday's Market 03/20/2013

Although the market action today was not exactly as forecast, it does appear that 1538.57 will prove to be the low of this corrective phase, and the market is now poised to continue higher. There is a chance that this market has not bottomed, and if this is the case it will move substantially lower, possibly to 1520. The more likely scenario is that the market completed an inverted corrective wave from the 10/05/12 1470.96 high yesterday at 1358.57. That should complete Wave 2 from the 1266.74 low, with Waves 3, 4, and 5 pushing the SPX higher.

 

The market opened higher this morning as expected, but the magnitude of the rise was larger than anticipated. When the market moved above 1557, it became clear that the scenario I alluded to yesterday would not play out. It now looks like the SPX completed a 5 wave sequence from the 1538.57 low yesterday at 1550.46. The market then formed an inverted corrective Wave 2 from that point, which catapulted the SPX to 1559 within the first fifteen minutes of trading. Wave 2 completed at 1555.23, with the market then tracing out the remaining waves, and completing a 5 Wave sequence near the close at 1561.56.

 

I had been anticipating the corrective sequence from 1563.62 to complete an inverted corrective wave from 1470.96, but my interpretation was that 4 waves had completed, with only Wave 5 left. This interpretation would require a 5 wave sequence from 1563.62. As of yesterday I counted 3 waves completed, and anticipated a move up for Wave 4 and one final move down for Wave 5, which would have completed the sequence.

It now appears that 1563.62 marked the end of Wave 2 of the inverted corrective sequence from 1470.96, and the 3 waves from that high were waves 3, 4, and 5. With the corrective sequence now complete, the market should be ready to move higher.

 

 

 

 

Tuesday's Market 03/19/2013

 The market opened to the upside this morning, rising above 1557 before falling back to 1550. After a short-lived rebound, the market broke through yesterday’s 1545 low, and fell to 1538.57 with only one feeble attempt at moving higher. After that, the market staged a pretty good rally, moving above 1550 once again. A pullback followed, with the market turning higher into the close.

Yesterday I called for the market to open slightly lower before moving up to 1558, with a test of the 1545 low to follow. I was wrong about the lower opening, with the explanation coming shortly, but the market then acted as expected.

 

As for the explanation, I will break down the current wave from Friday’s 1563.62 high. The move from that point to 1555.74 formed Wave 1 of the current wave. The SPX moved to 1562.86 after that, which I interpret as Wave 1 of an inverted corrective Wave 2 from 1563.62. The market completed another 5 Wave sequence at 1557.29, which is Wave 1 of a sequence one degree smaller than the 1563.62-1555.74 wave. The bounce to 1560.70 is where I went wrong. Yesterday I interpreted that as Wave 1 of a second inverted corrective Wave 2. This is a set-up I refer to as a nested inverted corrective wave. It was under this assumption that I gave my forecast as I did. Today’s action made it clear that the bounce to 1560.70 was the completion of Wave 2 for that sequence that completed today as 1562.86-1557.29-1560.70-1545.13-1558.73-1538.57. This sequence then completed Wave 2 of the inverted corrective wave from 1555.74.

The market should now be in Wave 3 of that inverted corrective wave. From the low of 1538.57 I see wave 1, an inverted corrective wave 2, wave 3, and what appears to be wave 4, which concluded shortly before today’s close. T o complete the inverted corrective wave 2 from 1555.74, the market should move higher to 1554, pullback 1545, and then move higher to 1557. The market would then need to complete waves 3, 4, and 5 to complete the wave from 1563.62. I still look for 1535 to be the downside limit of this correction. It is possible that we have seen the low of this wave. With the low of 1538.57 being part of an inverted corrective wave, Wave 5 of the sequence could very well terminate above that level.

 

 

This scenario also fits in well with a timing model I have been developing. This timing model called for the end of this corrective wave to terminate late Wednesday afternoon. If the market should move higher at the open, and then fall to 1545 in the morning, the final move to 1557 mentioned above could occur in a couple of hours. With the FOMC concluding its meeting tomorrow afternoon, there would be enough time to complete Waves 3, 4, and 5 to the downside. The FOMC statement could then provide the impetus for the next move higher, or the final push lower if it has not already completed.

I have been a little long winded, so I will wrap this up here. The market should move higher tomorrow morning, first to 1554, and then 1557. This should be followed by a test of today’s 1538.57 low, which should hold above 1535. That will then complete the wave from 1563.62, and the inverted corrective wave from 1470.96, clearing the way for the market to move higher, to above 1608.