Thursday's Market 04/11/2013

Although the market moved higher again today, it was a much choppier trading session than yesterday. Along the way, there were a number of interesting wave formations, and left open a slight possibility that a 5 Wave sequence has completed from 1540.29.

The market opened slightly lower, falling to 1586.17 before resuming yesterday’s strong rally. From that point it looked like a continuation from yesterday, as the SPX rose to a high of 1597.35, with the largest dip being less than two points. Just when it looked like the market was going to attempt to break 1600, it began to sell off. It quickly fell to 1592, and then came a series of oscillations with slightly lower highs, and slightly lower lows. From 1592 the SPX went to 1596.75, 1591.43, 1595.63, and finally 1591.05. The market then rose slightly into the close.

The rise from 1585.33 to 1597.35 contained 5 distinct 5 wave sequences, 1585.33-1589.07-1586.17-1592.32-1590.63-1597.35. However these individual sequences did not complete a 5 Wave sequence, as the correlation for this is only .9378, well below my model’s threshold value. This indicated a more complex wave structure was underway, and indeed I believe that is what happened. It appears the market is forming a nested inverted corrective wave structure that should carry the market higher. This structure contains a wave 1 up, a wave 1 down to initiate the inverted corrective wave, another wave 1 up, followed by another wave 1 down to start a second inverted corrective wave. I will spare everyone the gory details of how this wave unfolded. The result was the second inverted corrective wave terminated at 1592.44, and the second 5 wave structure completed at 1596.75. The first inverted corrective wave carried the market back down to 1591.05, which leaves us with one 5 Wave sequence to complete. 

If 1591.05 is Wave 2 of this sequence, I would expect a move above 1597 for Wave 3, a slight pullback, and then Wave 5 near 1605. It was correctly pointed out to me yesterday that I made a calculation error. I said the sequence from 1567.97 would complete as 1599-1597-1621. It should have read 1605-1599-1621. I apologize for the error.

When the current sequence from 1567.97 completes at 1605, it will complete Wave 3 from that point. I would expect a small correction to 1599, and then a final push to 1621 to complete the 5 Wave sequence from 1538.57. At that point I would expect a correction, possibly to 1551, before one more rise to slightly higher levels to complete the sequence from 666.79.

I mentioned at the start that there is a slight possibility of a 5 Wave sequence having completed from 1540.29. I counted the move from 1540.29 to 1573.89 as a 5 Wave sequence. The move then from 1567.97-1586.39 completed another sequence, which I see as one degree less than the first, followed by an inverted corrective wave to 1585.33. Putting the sequence together from 1540.29 to today’s high gives us 1540.29-1573.89-1567.97-1586.39-1585.33-1597.35. This sequence has a correlation of .9913, within my model’s threshold. However, as I described above, I do not see the move from 1585.33 to 1597.35 as a complete 5 Wave sequence. If it is not, a sequence from 1540.29 cannot be completed. It is possible that I have misread the wave, and since the sequence from 1540.29 to 1597.35 does fall within my model’s parameters, it needs to be considered as a possibility. If the market falls below 1585.33, this will be the likely scenario, with a target around 1551.

Thank you.

Wednesday's Market 04/10/2013

WOW! What a day for the market. As anticipated, the slight pullback into the close yesterday, proved to be the low. The market started strong, and remained strong throughout the day.

Another gap to the upside took the market to 1576.10 at the open, followed by a two point pullback. That was only the beginning, as the market continued higher, and higher, until it reached 1586.39. This move higher was only interrupted by a couple of small pullbacks. One more pullback set the stage for the final push of the day, which brought the SPX to 1588.85. From there the market saw its most substantial drop of the day, plummeting nearly three and a half points to 1585.33. The market recovered at that point and rose nearly to its previous high before the close.

The first 5 Wave sequence of the day was a familiar wave, with an inverted corrective wave 2. This completed as the market hit 1586.39. From there, the market turned a little choppy, eventually wending its way to 1585.33. This was itself a corrective wave 2 from the 1586.39 high. 

Looking at this entire wave sequence from 1538.57, the market as now completed four waves, and Waves 1, and 2 of Wave 5. Wave 1 was the rise from 1538.57 to 1564.91 on 3/25/2013. Wave 2 was then the semi-inverted corrective wave that stretched from 1564.91 to 1540.29. Wave 3 went from that low, to yesterday’s 1573.89 high. Wave 4 then completed at yesterday afternoon’s low of 1567.97.

Today the market completed Wave 1, and Wave 2 of 5 at 1586.39, and 1585.33 respectively. Waves 3, 4, and 5 of 5 should lead to the end of this sequence. With more waves completed, it is now likely that this wave will carry slightly higher than the 1619 I had previously mentioned. The SPX should now top over 1621.

A likely path for these final waves would be something like 1599-1597-1621. After this wave completes, the market should finally be ready for a correction.

Thank you.

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.