Friday's Market 03/22/2013

To say that the market is at an inflection point may prove to be an immense understatement in the coming days. While most, including myself, have been focusing on whether the market will move up or down a few points to signal the short-term direction, a move of much greater magnitude may be forthcoming. It is possible, indeed probable, that the market completed a 5 Wave sequence from 1074.77 last Friday at 1562.63, AND a 5 Wave inverted corrective Wave 2 from 1370.58 on Tuesday at 1538.57. Perhaps the equilibrium the market has experienced recently has been the result of these two large magnitude waves completing within a short time period, and within a tight point range. At the very least the market has put in a 5 Wave sequence top from 1074.77, with the implication of a fairly large move in whichever direction this market breaks out.

 

The market continued the rally from yesterday afternoon right from the open. The market reached 1552.88 near the open before the first slight pullback. This was right at the 1553 resistance level I mentioned yesterday. The resistance proved short-lived, as the market quickly broke through and rose to 1557.74 by early afternoon. After pulling back to 1553, the market rose again into the close.

The pullback from 1561.56 was a 5 Wave sequence that included an inverted corrective wave. The termination point of that 5 Wave sequence turned out to be 1545.90, higher than the actual low of the wave possible because of that inverted corrective wave. The failure for the wave to complete at the low may give an indication that this market wants to move higher.

 

 

I am still looking for a break above 1563.62 to confirm a breakout to the upside, and a move below 1538.57 to signal a break to the downside. I will elaborate more fully over the weekend.

 

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.