Tuesday's Market 04/09/2013

It turned out to be quite an interesting day. I have been talking about this “semi-inverted corrective wave” scenario since this weekend, and the market seems to be playing out that scenario thus far. The market also gave us a perfect example of a semi-inverted corrective wave today, which I will try to describe in detail. This may make my scenario from 1538.57 easier to understand.

The market opened higher today, hitting 1566.51. After that, the market turned lower, dropping to 1560.92. The market then turned higher, rising to 1565.99, once again hitting that 1565 resistance level that has proved so stubborn. That level held once again, dropping the SPX to 1561.38, before it once again moved higher. The market soon ran into that 1565 level for the third time, but this time it wouldn't hold. After a slight pullback, the market finally broke through that level, and it was up, up, and away. The market quickly ran up to 1573.89, with only small pullbacks along the way. Yesterday I mentioned the 1572 as a likely stopping point, and that level was pretty much on target. The market then fell on cue, falling to 1567.97 near the close.

The up and down movement at the start of trading was the unraveling of yesterday’s Wave 5(Blue) high. When the market hit 1560.92, that wave was completed, and so was Wave 4(Purple) from 1540.29 low. After rising to 1564.30, the market completed Wave 1(Blue) of the next sequence. Wave 2 was the semi-inverted corrective wave I mentioned earlier. This wave ended at 1561.38. The strong upside move from that point completed Waves 3, 4, and 5 (Blue) of that sequence.

This completed a 5 Wave sequence (Purple) from the 1540.29 low and most likely Wave 3 from 1538.57. A 5 Wave sequence then completed to the downside, terminating at 1567.97, which I believe is the end of Wave 4 from 1538.57, which leaves us with Wave 5, and a target of 1619.

As promised, I will try to break down the semi-inverted corrective wave that occurred today. The 5 Wave sequence began at 1560.92, with Wave 1 ending at 1564.30. This is the blue “1”. You will then see a 5 Wave sequence in white that ends at 1561.38. This is the semi-inverted corrective wave. These waves start with a small corrective move for Wave 1, then Wave 2 moves beyond the higher degree Wave 1, which in this case is the blue “1”. Waves 3 and 4 complete within the boundaries of the blue “1”, and the white “1”. Wave 5 then completes the sequence, and Wave 2 of the higher degree wave, or Wave 2 (Blue).

After a semi-inverted corrective Wave 2, Waves 3, 4, and 5 play out in a fairly predictable pattern. Wave 3 usually ends close to Wave 2 of the semi-inverted corrective wave. In this case blue Wave 3 ended at 1565.76, just below white Wave 2, which was 1565.99. Wave 4 is then usually quite shallow, in this case just over a point, and Wave 5 can be projected using the Wave 1 of 1, and Wave 2 of 2 (white) as reference points. In this case Wave 1 of 1 (Blue) was 1562.40. I then take the points (1560.92, 1562.40), (1562.40, 1565.99), and (1565.99, X), where X is the termination point of Wave 5 (Blue). I then find the value of X, for which the resultant correlation is 1. The number that solves the equation for this example is about 1574.82, very close to the eventual Wave 5 (Blue) high of 1573.89. This is the same relationship I used in yesterday’s example, and the way I can project the Wave 5 high from 1538.57.

The 15 Minute chart shows the entire current wave structure. Wave 1 of this sequence came in at 1564.91, and is the red “1”. Wave 2 (Red) is then the entire move from 1564.91 to 1540.29. This is the semi-inverted corrective wave. I believe Wave 3 (Red) ended today at 1573.89. This is very close to the Wave 2 of 2 high 1573.66, very similar to both examples I have given. The short pullback to 1567.97 is then most likely Wave 4 (Red). Again, in both previous examples Wave 4 was very shallow. Wave 5 is then usually a pretty dramatic move. Again, my target is 1619.

Thank you.

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.