Weekend Outlook 04/07/2013

I apologize for the lateness of this Weekend Outlook. I had some prior obligations that kept me from away until now. However, that time did give me time to ruminate about the market action of last week.

I will confine most of this post to the move from 1538.57. After reviewing my charts this weekend, I believe I have finally reconciled the issues I have had with my count from that point. Interestingly, Friday’s plunge to within two points of that low was the key. It reminded me of a similar point in the market that occurred in April-May of last year.

On Friday, 4/20/12, the market closed at 1378.53. From a recent 1357.38 low, the market had trended higher in choppy trading. On the following Monday, the market dropped nearly twenty points, to within two points of the 1357.38 low. At the time, most people were looking for the market to continue the decline, but instead the market quickly rose to 1415.32. That nearly twenty point plunge turned out to be Wave 5 of an inverted corrective wave.

Given the above scenario, the action from the 1538.57 low started to look quite familiar. Upon further examination, it appears that I missed a couple of waves. The first error was during the initial uptrend to 1561.56. I had originally counted that as a single 5 Wave sequence, but would now suggest that it was actually Waves 1, 2, and 3 of a sequence. That sequence then completed at 1564.91. Thus we have 1538.57-1550.46-1544.02-1561.56-1545.90-1564.91.

The second error I mentioned last week. That is, the move from 1546.22 to 1573.66 was a 5 Wave sequence. This sequence was 1546.22-1563.95-1551.90-1568.30-1558.47-1573.66. Wave 4 was another example of a semi-inverted corrective wave. The decline from 1573.66 to 1540.29 then completed Waves 3, 4, and 5 of a semi-inverted corrective wave from the 1564.91 high.

I still see 1538.57 as the completion of a 5 Wave inverted corrective wave from 1370.58, and Wave 2 from 666.79. This would mean that the market has now completed Waves 1, and 2 of Wave 3 from 666.79.

Looking back at the first example, Wave 1 of 1 completed at 1374.71, while Wave 2 of 2 completed at 1392.76. The correlation between these wave points, and the ultimate high of 1415.32 was .9973. That is, using the points (1357.38, 1374.71), (1374.71, 1392.76), and (1392.76, 1415.32), yields that correlation coefficient. Applying the same relationship to the current wave, gives a target of 1619.00.

If this count is correct, the market should not move below 1538.57 anytime soon. If this sequence ends at 1582.50, there should be a correction, and then another move higher to complete Wave 5 from 666.76.

Thank you.

Friday's Market 04/05/2013

In hindsight, I should have kept my thoughts to myself yesterday, and stayed with my unorthodox call on Wednesday of a 5 Wave sequence from 1538.57 being completed at 1564.86. This would be Wave 3 from 666.79. The action of the market today, in particular the move below 1545.90, confirmed at minimum that a 5 wave sequence from that low had completed.

The SPX also broke below 1547; the level I mentioned yesterday as indicating a downtrend was most likely underway. That downtrend may indeed have started, but the fact that the market remained above 1538.57 may mean there is one more surprise in store.

 

If you look at the 3 Minute chart, you will see that from the 1564.86 high, the market completed a 5 wave Sequence down to 1549.80, a 5 Wave sequence up to 1562.60, another 5 Wave sequence down to 1552.52, and a final sequence up to 1560.26. This higher low, lower high formation can be an indication of a nested inverted corrective wave, and that is exactly what happened today. The market gapped down at the open, dropping to 1539.80. For the next hour the SPX bounced in a narrow range, hitting a low of 1539.50. This choppy trading will prove to be the most important aspect of today’s trading.

After bouncing around the 1539.50 low, the market staged a rally that carried all the way to the close. After rising to 1548, the market again bounced around in a narrow range until shortly before the close. The SPX then made it all the way to 1554.66 before dipping into the close.

 

As I mentioned above, the market seemed to be forming a nested inverted corrective wave from the 1564.86 high. These waves can be very powerful, and that is what unfolded today. These waves require many waves to complete near the end of the formation, as four degrees of waves need to form before the wave has completed. Taking a closer look at the choppy trading shortly after the opening gap down, reveals how these waves were completed.

There are too many waves to delineate on the 3 Minute chart, so I expanded to a 1 Minute chart for demonstration purposes. The highest degree wave is in blue, then light purple, green and deep purple. I will explain this wave inside out, meaning I will start with the lowest degree wave, and end with the highest. This shows how the waves are connected.

The lowest degree wave began at yesterday’s 1552.52 low, and formed 1552.52-1560.26-1539.80-1541.54-1541.42-1544.12, and had a model value of .9999. The next degree wave started at the 1562.60 high, with Wave 1 completing at 1552.52, and Wave 2 completing at 1544.12, the termination point of the lesser degree sequence. This sequence was 1562.60-1552.52-1544.12-1540.64-1542.38-1539.50, with a model value of .999998. The next degree wave followed the same pattern, and went 1549.80-1562.60-1539.50-1541.82-1539.86-1542.23. The model value for this sequence was .9962. The final sequence from the 1564.86 then completed as1564.86-1549.80-1542.23-1541.16-1541.68-1540.29, and a model value of .9962.

From the completion of that wave at 1540.29, the SPX then completed a 5 Wave sequence to 1554.66 that contained an inverted corrective Wave 4. The main sequence consisted of 1540.29-1545.01-1542.39-1548.10-1547.55-1554.66, and a model value of .9988. The inverted corrective Wave 4 started at 1548.10, and formed 1548.10-1545.61-1547.17-1544.19-1549.76-1547.55. This sequence had a model value of .9948.

 

Looking at the larger picture, the market has completed 3 Waves from 666.79, 666.79-1370.58-1538.57-1564.86. It is possible that from that point waves 4, and 5 also formed, with a move below 1538.57 confirming that. With the nested inverted corrective wave completing today, and holding above 1538.57, the more intriguing possibility is that 1540.29 marks the end of Wave 4 from 667, with Wave 5 now underway. Further evidence of this count is the fact that nested inverted corrective waves normally indicate trend reversal points, and the Waves 1, 3, and 5 from 1540.29, are expanding. Normally at the end of a wave structure, the waves will contract, much as they are with the larger wave structure from 667.

Given the structure already completed, Wave 5 would have an upper limit of 1589. More accurately, a termination point above 1589 falls below my correlation threshold for the points (666.79, 1370.58), (1538.57, 1564.86), (1540.29, X), where X is the termination point of Wave 5.

Thank you.

 

 

 

 

 

 

Thursday's Market 04/04/2013

Although my analysis on Tuesday concerning Wednesday’s possible market action seems to have been prescient, and I certainly hate to be the one to rain on my own parade, I believe it is more important to get things right, than to be right.

The market followed one of my scenarios quite precisely, but also left a number of questions. As I noted yesterday, the wave shape looks quite odd, and given my count on the 3 Minute chart as of EOD Tuesday, the decline from 1573.66 to 1549.80 looks, and counts, best as a single 5 Wave sequence. I will address this in more detail shortly, but first a review of today’s action.

 

This morning the market continued the rally it began yesterday afternoon, rising to 1562.60. This completed a 5 Wave sequence from 1549.80 with 1549.80-1555.80-1557.34-1560.88-1559.80-1562.60, and a model value of .9999. This wave contained an inverted corrective Wave 2, forming 1555.80-1553.68-1556.17-1554.60-1557.56-1557.34, which has a model value of .9981.

From there, the SPX formed a simple 5 Wave sequence as 1562.60-1552.71-1560.40-1553.83-1556.18-1552.52, this sequence has a model value of .9955. After reaching the 1552.52 low, the market rose again, but failed to reach a new high for the day. This sequence went 1552.52-1554.91-1556.19-1559.42-1556.66-1560.26, and also contained an inverted corrective Wave2. The main sequence had a model value of .9981, and Wave 2 traced out 1554.91-1553.88-1557.77-1556.80-1557.19-1556.19. This sequence had a model value of .99996.

 

Today’s market had the feel of a consolidation day following Wednesday’s big decline. With no clear trend emerging today, the question of where the market goes next remains, which leads back to the first part of this post. One other thing that has bothered me has been the failure of a larger 5 Wave sequence to emerge from the 1538.57 low. There are not usually this many peaks and valleys without some sequence completing. I spent a good deal of time today reviewing the move from that point, and concentrated on the move from 1546.22 to 1573.66. After reviewing that part of the chart, one alteration clears things up a bit. Between 1551.90 and 1570.57 there is a peak visible at 1568.30. It is most likely that a 5 Wave sequence from 1551.90 completed there, and then formed a semi-inverted corrective wave from 1568.30 to 1558.47. This count can be seen in parentheses on the 15 Minute chart. A 5 wave sequence from 1546.22 then emerges as 1546.22-1563.95-1551.90-1568.30-1558.47-1573.66. This sequence has a model value of .9997, and completes at the peak.

If this count is correct, and I believe it is, the first four points from 1538.57 are most likely a series of Wave 1’s. This would indicate a further move to the upside is close at hand. Since several counts are still possible, and going into each one in detail is not helpful. What is helpful at this point is to watch important market levels that will indicate the next market move.

The first level to watch is still the 1565.50 level. A 5 Wave sequence from 1538.57 could still terminate at this point, and the market would then see another move down, which will hold above 1538.57, and one final move higher to a marginal new high.

If the market moves above 1565.50, the nested inverted corrective wave that I have favored for awhile would be the most likely outcome. This would indicate a substantial move to the upside

To the downside, 1547 is the point to watch. The market could complete an inverted corrective wave from 1561.56 at this point. If an inverted corrective wave does complete at this point, I would anticipate two moves higher similar in size to the 1538.57 to 1561.56 advance, separated by a corrective Wave 4. This would put the market in the 1580-1600 range.

If the market moves below 1547, a larger move to the downside has most likely started. If the market follows that up with a move below 1538, we could move substantially lower.

Thank you.