Weekend Outlook 03/30/2013

Last weekend I updated my count indicating that the market had now completed Wave 2 from 666.79 at 1538.57, which turned out to be an inverted corrective wave, and leaving open the possibility that the market had also completed Waves 3, 4, and 5 from the 666.79 low. This week the Wave 2 low was confirmed, and the fact that we are still in Wave 3 became clear.

Although my model is based on wave counts, I will once again point out that it is not Elliot Wave Theory. If you are looking at my counts from an EW perspective they will look odd, but they are based on mathematical relationships between waves. There have been a lot questions concerning my model, and up to this point I have been reluctant to go into specifics. There are several reasons for this, some obvious, some not so obvious. However, I feel the time has come to share at least the basics of my model. Some of this is for the sake of credibility; some is based on the fact that in order to advance my theory I need a certain amount of feedback, both positive and negative. The scientific method if you will.

 

The 5 Wave Model is based on a surprisingly simple principle. That is, in a given 5 Wave sequence, waves 1, 3, and 5 share a certain proportionality. The endpoints of these waves are highly dependent on their starting points. Throughout this post, I will point out this relationship through examples.

I will start today with my long term count from 666.79. As I have stated previously, the market is now in my Wave 3 from that point. Wave 1 terminated at 1370.58, with the 5 waves breaking down as 666.79-956.23-869.32-1219.80-1010.91-1370.58. If you plot these waves as points, (666.79, 956.23), (869.32, 1219.80), (1010.91, 1370.58), you will find they have a correlation coefficient of .997. I use certain threshold correlation values to determine wave end points.

Wave 2 began at 1370.58, and terminated at 1538.57. It was an extremely complex wave, and what I call an “inverted corrective wave”. This wave broke down as 1370.58-1074.77-1555.74-1562.86-1538.57. These points have a correlation coefficient of .994.

 

With Wave 2 ending at 1538.57, the market is now in Wave 3. This wave appears to be forming a rather complex wave. Several 5 Wave sequences have completed, but those 5 Wave sequences have not yet completed a subsequent 5 Wave sequence. I have identified 5 Wave sequences from 1538.57-1561.56, 1561.56-1545.90, 1545.90-1564.91, 1564.91-1546.22, 1546.22-1563.95, 1563.95-1551.90, and 1551.90-1570.28. My interpretation is that the first four sequences identified can be Waves 1, 2, 3, and Wave 1 of an inverted corrective wave, or a series of 1’s followed by Wave 1 of an inverted corrective wave. This is what I call a nested inverted corrective wave. Both of these interpretations imply higher prices. One other possibility is a Wave 1, followed by Waves 1, 2, and 3 of an inverted corrective wave The next three sequences appear to be Waves 1, 2, and 3 of a lesser degree wave. I have identified the first four sequences with an “X” on the 15 Minute chart.

In order for the wave from 1538.57 to complete, we must first see Waves 4 and 5 from 1546.22, followed by a minimum of one more move higher, depending on how the other waves resolve. Wave 4 should terminate at 1563.50, or 1557.40, which then gives a Wave 5 projection of 1576.40, or 1583.20. Using several other relationships, 1557 for Wave 4, and 1576 for Wave 5 seem to be the best fit.

Once Wave 5 is completed, the market should move lower. I would expect this correction to terminate at either 1554, or 1547. Those prices would fit the possible patterns I alluded to previously. This move lower should give us a better idea of the Wave degree of the first four sequences from 1538.57.

 

 

 

 

Thursday's Market 03/28/2013

The SPX opened higher today, reaching 1565.09, falling just short of my 1565.50 upper limit that would end this move from 1538.57. That limit was derived from the highest price that would complete a 5 Wave sequence from the aforementioned low, given the pattern of 5 Wave sequences completed thus far. A move above that point would signal a different wave structure was underway, and a structure indicating higher prices was forming. After pulling back to 1561.08, the market once again moved higher, this time surpassing my 1565.50 limit, and continuing on to 1568.30. Another pullback followed, this time taking the index to 1564.42, before the market rose for a final time. This rise was more sustained, and topped out at 1570.28 just before the close.

 

I indicated yesterday that I had expected a lower opening, which was based on the market having completed a 5 Wave sequence at 1567.04. The dip yesterday from that high, the higher open today, and the first decline this morning to 1561.08 formed a semi-inverted corrective wave from that high. From 1561.08 the market traced out a 5 Wave sequence to 1568.30, which included an inverted corrective wave. Following the 5 Wave sequence decline to 1564.42, the market formed one final 5 Wave sequence to the day’s high of 1570.28.

 

Looking at the 15 Minute chart, the larger formation from the 1538.57 low is becoming clearer. It is now evident that the market is still in Wave 3 from the 667 low. The next possible 5 Wave sequence that may form is from the 1546.22 low. It appears that 3 Waves have formed up to the 1570.28 high, leaving Waves 4, and 5. From 1570 we are likely to see a pullback to 1557, a rise to 1574, followed by another pullback to 1548.

I will elaborate on this count over the weekend.

Thank you.

 

 

 

 

 

Wednesday's Market 03/27/2013

The more things change, the more they remain the same. After starting the trading session to the downside as anticipated, the market quickly turned around. By the end of the session, the market had pushed slightly into positive territory, and finished within a point of yesterday’s close.

 

The market opened to the downside, falling below 1552 to 1551.90, which proved to be the low of the day. The next several hours saw the market gain back nearly ten points, rising to 1561.19. After a pullback to just below 1558, the market rallied the rest of the day; edging out yesterday’s high before pulling back into the close.

The market completed a 5 Wave sequence from the low of the day to the high, indicating the market may move lower at the outset tomorrow morning. However, the market is just as likely to rise off that low as it did today.

While my bias is still for this market to move lower, I am still looking at a break above 1565.50 as an indication that the market will move higher. A drop below 1545.90 will confirm a breakout to the downside.

Thank you for your interest and support.