Tuesday's Market 04/16/2013

In the past week, the market has gone up thirty points, dropped forty-five, and up twenty-three. There is a very interesting count developing which could bring us right back where we were a week ago, and with the same target; 1619.

The market opened markedly higher today, in sharp contrast to the action from yesterday. The market popped above 1563, and the quickly found itself at 1566. The market then began to fall back, dropping to 1559.93 before regaining its footing. The rally then continued, as the SPX ran up to 1573.03 with only minor pullbacks. After hitting 1573, the market fell back once again. But a drop to 1567.64 was soon followed by a rally to a new intra-day high at 1575.35.

Yesterday I said the market had completed a 5 Wave sequence to the downside, and a move above 1559 would signal a resumption of the move higher. With the market opening above that level at today’s open, that remains the strongest possibility. The SPX completed Waves 1, 2, and 3 of a 5 wave advance today. The opening pop to 1566.22 was Wave 1. Wave 2 was an inverted corrective wave, with Waves 1, 2, and 3 completing at 1559.93. Wave 4 was then the more powerful move to 1573.03, and was followed by Wave 5 at 1567.64, to complete Wave 2 from 1552.58. The rally into the close at the moment appears to be Wave 3 of that sequence. It is possible that Wave 4 completed with the slight dip into the close. If it did Wave 5 should complete at 1579-1580.

With the current structure of today’s partially completed wave, it would appear to be a corrective wave as opposed to an impulsive one, which becomes problematical if the market is to move higher. The market may be able to rectify this seeming inconsistency however. If the SPX completes this sequence at 1579-1580, there should be support near 1565. The sequence 1573.89-1567.97-1597.35-1552.58-1579-1565 would actually complete a 5 wave corrective sequence from 1573.89. That would complete Wave 4 from 1538.57, and give a target for Wave 5 of 1619 once again. It would be extremely unusual for a wave to form in this fashion, but this has been a very unusual market for some time.

I still consider the market to be up trending from the 1538.57 low. An open above the 1580 level would seem to confirm this. My first target would be the 1598-1612 area. If the SPX drops below 1538.57 I will consider this uptrend to be over.

Thank you.

Monday's Market 04/15/2013

The first part of today’s move to the downside was expected, the second quite unexpected.

The market gapped lower at the open today, falling to 1578.97, just as I had mentioned this weekend. After making several slightly lower lows to 1575.31 the market attempted to rally. At this point I had expected the market to resume its uptrend, but it was quite the opposite that actually happened. After breaking through the previous low, the SPX fell precipitously, dropping to throughout the day, and closing on the low at 1552.58.

It looks like the SPX has completed a 5 Wave sequence from 1597.35 at this point. This calls into question my count from the 1538.57 low. The count rests on whether the move from 1540.29 to 1597.35 consisted of two 5 Wave sequences, or one. There is a count that shows it completing two sequences, and a 5 Wave sequence from 1538.57. That would make 1597.35 the termination point of Wave 3 from the 666.79 low, and today’s move lower as most likely Wave 3. Another move higher to the 1600 area would then complete the sequence.

If that move consisted of one wave, it would make 1597.35 Wave 3 from 1538.57, and this Wave 4. Wave 5 would then project much higher than 1600, and complete Wave 3 from 666.79. This would then be followed by Waves 4, and 5.

One of the reasons I have rejected the 1540.29 to 1597.35 move as one sequence up until this point has been the high target that it would lead to. At this point I will have to keep that option open.

I would look for a move above 1559 to signal another move to the upside, with a target near 1600.

If the SPX should fall below 1538.57, a 5 Wave sequence from 666.79 has most likely completed.

Thank you.

Weekend Outlook 04/13/2013

It was a record setting week for the market. From the low of 1539.80 hit last Friday, the SPX rose to a record high of 1597.35 with not much more than a six point correction along the way. After hitting that high on Thursday of this week, the market moved lower the rest of the day, and then sold off sharply Friday morning. After hitting a low of 1579.97, the market recovered into the close.

 The initial rise from last Friday’s low, to 1573.89 on Tuesday, I believe to be Wave 3 of a larger wave from the March 19^th 1538.57 low. The subsequent correction to 1567.97 I see as Wave 4. The market then is currently in Wave 5 from that low.

By way of offering some perspective, I will begin with the March 2009 low of 666.79. The counts I will offer are based solely on my model, and should not be confused with any other wave counting method. From the 666.79 low, the SPX completed a 5 Wave sequence in accordance with my model at 1370.58. Wave 1 of that sequence took the market to 930.17. Wave 2 was then a 5 Wave sequence that I have termed a “semi-inverted corrective wave”. I have been mentioning this term quite a bit in the last week, and I am not sure I have defined it. In a normal corrective wave, waves 1, 3, and 5 will move opposite the main trend, with each surpassing the other, while waves 2 and 4 do not move beyond the starting point of the previous wave. As an example, if the previous 5 wave sequence was a move higher, a normal corrective wave would have wave 1 moving down, wave 2 moving up, but not exceeding the previous wave 5 high, wave 3 lower, wave 4 higher, but not exceeding the end point of wave 2, and wave 5 moving lower.  In a semi-inverted corrective wave, wave 1 would move lower, wave 2 would exceed the previous wave 5 high, wave 3 would move lower, and terminate between the endpoints of waves 1, and the previous wave 5 high, wave 4 would move higher and terminate within the same range, and wave 5 would move lower.

That is what I see in this wave 2, with an initial move lower, then a move above 930.17 to 956.23 for wave 2, and the entire 5 wave sequence completing at 869.32. Wave 3 was then a 5 Wave sequence that terminated at 1219.80. Wave 4 was a simple corrective wave to 1010.91, followed by another 5 wave sequence to 1370.58 to complete the sequence from 666.79. This entire sequence was then 666.79-930.17-869.32-1219.80-1010.91-1370.58. By then taking the correlation of the points (666.79, 930.17), (869.32, 1219.80), and (1010.91, 1370.58), we get .9969.

After the 1370.58 high, the market corrected to 1074.77. This was Wave 1 of an inverted corrective wave. This is a 5 wave sequence where Wave 1 moves opposite the main trend, Wave 2 moves beyond the previous Wave 5, and Wave 5 completes without moving beyond the endpoint of Wave 1. Wave 2 of this inverted corrective wave was the uptrend from 1074.77 to 1563.62. Inverted corrective waves are generally quite powerful, and this was no exception. This Wave 2 broke down into 5 waves, 1074.77-1292.66-1158.66-1422.38-1266.74-1563.62. The points (1074.77, 1292.66), (1158.66, 1422.38), and (1266.74, 1563.62) have a correlation of .9988.

This completed Wave 2 of the inverted corrective wave from 1370.58, and Waves 3, 4, and 5 completed quickly after that at 1555.74-1562.88-1538.57. The points (1370.58, 1074.77), (1563.62, 1555.74), (1562.88, 1538.57) have a correlation of .9996. That entire sequence formed Wave 2 from 666.79.

With 2 waves completed, the market would now need to complete waves 3, 1, and 5 to complete the sequence. It appears to me like we are still in Wave 3.  This has been a most interesting wave, and was quite difficult to follow at the beginning. The SPX first completed a 5 Wave sequence at 1564.91. This was 1538.57-1550.46-1544.02-1561.56-1545.90-1564.91. This sequence had a correlation of .9997. After reaching 1564.91, the SPX dropped to 1546.22, and then formed a 5 Wave sequence to 1573.66. These were Waves 1, and 2 of a semi inverted corrective wave that was the steep decline that took the market to 1540.29, within 2 points of the 1538.57 low. This low occurred on Friday, and in my Weekend Outlook of 04/07/2013 I stated my view that the market had completed a semi inverted corrective Wave 2 and the market would move up from that point, with a target of 1619. The market followed by moving almost straight up to 1597.35.

The market completed Wave 3 of this sequence at 1573.89 and Wave 4 at 1567.97. With 4 waves complete it is possible to extrapolate a target for Wave 5. This target would be above 1621.

Wave 1 of 5 of 3 from 666.79 was fairly extensive, carrying the market from 1567.97 to 1597.35. At that point the market corrected, with the market falling to 1579.97. I believe this is the low point of the correction, but not the end of Wave 2. I believe this is the low point due to a wave relationship often found with corrections. This relationship is between the start point of the impulsive wave (1567.97), the low point of the correction (1579.97), Wave 3 of the previous impulse wave (1584.18), or Wave 2 of an inverted corrective wave (1588.85), and Wave 5 of the previous impulse wave (1597.35). This would be (1567.97, 1579.97), (1579.97, 1588.85), and (1588.85, 1597.35). The correlation using these points is .9973. Should this level be broken, 1571-1572 would be the next support.

Now as to why this may not be the end of Wave 2 from 1567.97. Sharp declines, such as the one from 1597.35 are difficult to decipher at times. Looking at the entire wave structure from that point, to the 1588.71 recovery high on Friday, there is an interesting possibility for Monday. During the decline, the market formed a 5 Wave sequence at 1585.82. This was followed by a small bounce to 1588.64, and then what appears to be another 5 Wave sequence to 1579.97. After that low, the SPX formed a 5 Wave sequence to 1586.06, and then what appears to be a semi-inverted corrective Wave 2 at 1584.41. This followed by a 5 Wave sequence to 1587.68, a small dip, and then a rise to 1588.71.

Looking first at the wave structure from 1579.97, the sequence 1579.97-1586.06-1584.41-1587.68-1586.52-1588.71 has a correlation of .9972. I have noted recently on the wave relationships for semi-inverted corrective waves. The relationship I mentioned used Wave 1 of one lesser degree along with Wave 2 of the semi-inverted corrective wave to set a target for Wave 5. The relationship can also be formed using Wave 5 of one lesser degree, and Wave 2 of the corrective wave. In this case we have (1579.97, 1586.06), (1586.06, 1588.27), and (1588.27, 1588.71), which yields a correlation of .9946.The wavelengths of this sequence are also contracting, usually an indication of the end of a move. So at the moment it looks as if only 4 waves have completed from the 1597.35 high. If we extrapolate a target using those 4 waves, we get a termination point of 1579-1580. So it looks like it is possible that the market will test the previous low before moving higher.

Based on targets generated by my model, I see a re-test of the 1579.97 low, followed by a move above 1605, a small pullback, and then a further move above 1621. That should complete Wave 3 from 666.79, and from that point we could see a correction, perhaps to 1551.

Thank you.