Monday's Market 04/01/2013

In my Weekend Outlook I said I expected the market to decline today, and gave 1563.50, and 1557.40 as likely termination points for the decline. After a slight move higher at the open, the SPX declined to 1563.77, and after a failed rally attempt wound its way down to 1558.47.

 

The market did open slightly lower, dropping below 1568 before rising just above Thursday’s high of 1570.28 to 1570.57. This then completed a 5 Wave sequence from 1551.90, with that sequence being 1551.90-1564.07-1561.08-1568.30-1564.42-1570.57. This yields a correlation coefficient of .997 for the points (1551.90, 1564.07), (1561.08, 1568.30), and (1564.42, 1570.57).

From that high, the market fell fairly swiftly, first completing a minor sequence with 1570.57-1569.88-1569.79-1568.02-1568.62-1564.89. This gave a model value of .999. That wave then grew into a larger sequence with 1570.57-1564.89-1565.48-1563.84-1564.53-1563.77, and a model value of .992. This low of 1563.77 was very close to my estimate of 1563.50 as a support level. The market did rally, rising to 1566.87, before falling again.

Once again, the previous low turned into Wave 1 of a larger sequence, and the market formed a wave of 1570.57-1563.77-1566.87-1561.87-1562.50-1559.46, which had a model value of .999.

After reaching the 1559 low, the market underwent a more sustained rally attempt. This 5 Wave sequence went 1559.46-1561.10-1559.61-1562.39-1559.87-1564.07 with a model value of .994.

The SPX then went on to complete one more 5 Wave sequence from the morning’s high of 1570.57. With the drop to 1559.46 as Wave 1, and the rise to 1564.07 as Wave 2, the market completed Wave 3 of this sequence at 1558.73. This wave broke down as 1564.07-1562.22-1561.85-1560.24-1560.44-1558.73, and a model value of .997. A rise to 1560.43 completed Wave 4, and a final drop to 1558.47 completed Wave 5.

 

This low again was close to my 1557.40 projection, which I stated was my preferred target over the weekend. There is a possible count that would accommodate one more move lower, actually to the 1557 level, but it appears that 1558.47 will be the low for this wave. Any drop significantly below 1557 would most likely mean my count is incorrect.

With what appears to be Wave 4 from 1546.22 now completed, it is possible to project a target for Wave 5. The sequence 1546.22-1563.95-1551.90-1557.70-1558.47-1578.24 would give a model correlation of 1, and therefore 1578.24 is my target for Wave 5. Another correction can be expected from that point.

 

 

 

 

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.