Monday's Market 04/08/2013

The rally continued today off Friday’s low, closing the gap down opening. If the count I discussed in my Weekend Outlook is correct, we should see the market rise higher here, before a pullback.

With the completion of a 5 Wave sequence off the 1540.269 low just before Friday’s close, it was not surprising to see the market open slightly lower today. The market dropped to 1548.63 this morning, before resuming Friday’s rally. The market rose to the 1552-1553 area, where it encountered some resistance. After bouncing in a narrow range for a couple of hours, the market finally cleared that level. Once it did, the rally resumed in earnest. The market quickly rose to 1558.65, and after a small pullback, reached 1562.79.

From Friday’s 1540.29 low, the market now appears to have completed 3 Waves . Wave 1 completed at 1554.66, with the pullback to 1548.63 a second wave. The third wave most likely completed near today’s close at either 1562.25, or 1562.79. If it completed at 1562.25, the very minor pullback to 1561.97 could be a fourth wave. This would give a projection for Wave 5 somewhere above 1572.

That would most likely be the completion of Wave 3 from 1538.57 low. This would fit very well with a projection of 1619 for Wave 5 from that low, as I discussed over the weekend. If the market pulls back at the open, I would expect support near 1556. This would be about the same point drop as the move from 1554.66 to 1548.63, and could mean the SPX is forming an inverted corrective Wave 2 from 1554.66. Either way, the market should reach 1568-1572 to complete Wave 4.

Thank you.

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.