Tuesday's Market 04/23/2013

It was quite an interesting day for the market today. With the SPX having completed a 5 Wave sequence from the 1536.03 low, I thought it was a likely point for the market to resume its downtrend. I could not have been more wrong.

The market moved higher from the opening bell, blowing past the 1567, and 1572 resistance levels I mentioned yesterday. By midday, the SPX had hit my 1579 resistance level, topping out at 1579.58. The market started to pull back from that point, and then a flash crash sent the SPX down to 1563.03. Within minutes the market had recovered, before pulling back to 1573.13. The market then rallied into the close, falling just short of the 1579.58 intra-day high.

From yesterday afternoon’s 1565.55 high, the market formed an inverted corrective wave that carried over to this morning. This sequence was 1565.55-1562.90-1564.52-1561.56-1575.16-1572.46 (.9994). This completed Wave 2 from 1536.03, and the sequence then completed as 1577.40-1575.80-1579.58 (.9952).

The SPX pulled back from that high, and formed a 5 Wave sequence, 1579.58-1578.97-1579.36-1577.09-1578.08-1563.03 (.9992) that included the flash crash. 1563.03 also formed a relationship with the 1536.03 low, the Wave D high from this morning’s inverted corrective wave, and the 1579.58 high. If we look at (1536.03, 1563.03), (1563.03, 1575.16), and (1575.16, 1579.58), we find a correlation of .9978. Following the recovery from the flash crash to 1578.55, the SPX then formed a 5 Wave sequence to the downside, 1578.55-1575.90-1577.85-1575.11-1575.80-1573.13, .9989. This was followed by a 5 Wave sequence higher, 1573.13-1575.02-1575.87-1578.14-1576.97-1579.16, .9981 that included an inverted corrective Wave 2, 1575.02-1574.08-1576.74-1575.75-1576.87-1575.87, .99999.

I am still of the opinion that the SPX is in Wave D of an inverted corrective wave from 1292.66. The difficult part of this wave has been calling the top, and thus the start of Wave E down. I brought up the possibility of this wave moving beyond the 1597.35 high before that wave begins. This scenario is becoming increasingly likely.

The wave from 1536.03 to 1579.78 contained no overlapping waves by my model’s count. This generally means a continuation of that move. After today’s drop to 1563.03, the SPX formed two 5 Wave sequences to the upside, without completing a sequence from 1563.03, or 1536.03. This again implies another move to the upside. It is likely that the SPX is forming a complex corrective wave from either 1579.78, or 1578.50, so the exact structure is in doubt. A likely point of resistance would be 1592. This would be the 3^rd wave from 1536.03, meaning at least one more move after that.

If the SPX falls below 1573.13, this count would be in doubt, and a move below 1563.03 would most likely mean the next move down is upon us. Support is at 1574-1576, with resistance at 1580, and 1591. If the SPX moves above 1579.58, 1592 would be the likely next stop.

Thank you.

Monday's Market 04/22/2013

The market moved higher at the open today, climbing to 1560.10, which was near the 1561 resistance level I had mentioned, before falling back. The market quickly fell to 1549.19 before recovering. Recover it did, as the SPX moved slightly above the 1560.10 high at 1560.18. After a short pullback, the market continued higher, to 1565.55, before moving lower into the close.

I continue to see this as Wave D from the 1292.66 high, and still expect to see one more move lower to complete Wave E. This will complete the 5 Wave sequence, and the market should move higher from that point.

If the market is to move lower, this would seem to be the perfect time. The market has completed a 5 Wave sequence from the 1536.03 low, and should now start the final move down for this sequence.

Near term resistance is at 1567, 1572, and 1579. Support should be at 1551, and 1542. My target for Wave D would be between 1504, and 1459.

Thank you.

Weekend Outlook 04/20/2013

Since the SPX hit an all-time high a week ago Thursday, the market has been in corrective mode. Monday the market fell sharply, with the SPX finding itself nearly 45 points off its high. On Tuesday the market tried to recover, but Wednesday and Thursday were once again to the downside, with the SPX finding itself down over 60 points from the 1597.35 high. The market tried to rally again on Friday, and by the close the SPX had risen nearly 20 points off the low.

I have re-worked my charts, and labeling system to hopefully be more user-friendly. I have decided to use the more conventional numbers for impulse waves, and letters for corrective waves. I have also tried to be more consistent with the colors across time frames.  I hope this will make it easier to follow.

In my opinion, the market completed a 5 Wave sequence from the March 2009 low of 666.79 in May of 2011 at 1370.58. Wave 1 of this sequence completed at 930.17, and was followed by a semi-inverted Wave 2. For those familiar with Elliot Wave Theory, what I term a “semi-inverted corrective wave”, can be thought of as an expanded flat pattern. Wave B in this pattern completes beyond the beginning of Wave A, and Wave E finishes beyond the end of Wave A. Waves C and D in my model finish within Wave A. Wave3 then took the market to 1219.80, with a simple Wave 4 to 1010.91 following. The sequence then completed at 1370.58 with Wave 5. Creating points with the sequence 666.79-930.17-869.32-1219.80-1010.91-1370.58, gives us (666.79, 930.17), (869.32, 1219.80), and (1010.91, 1370.58). These points have a correlation of .9939. This relationship between Waves 1, 3, and 5 is the basis of my model.

From that high of 1370.58, the market corrected to 1074.77. This turned out to be Wave A of an inverted corrective Wave 2. Again turning to EWT for an analogy, inverted corrective waves would be similar to extended waves. Wave B finishes beyond the start of Wave A, and Wave E does not terminate beyond the end of Wave A. Waves C, D, and E can finish in one of two ways with this structure. It can either end in a zig-zag type pattern, or a pattern similar in appearance to a running flat, with Wave D finishing beyond Wave B, and Wave E not moving beyond the end of Wave C.

This inverted corrective wave turned out to be only the beginning of a series of these waves, or a nested inverted corrective wave structure. This structure would eventually create 5 Wave 1’s, and involve ten wave degrees. The market is now in the process of completing this structure, with Waves B, C, D, and E forming to complete Wave 2 of the next higher degree, followed by Waves 3, 4, and 5 to complete the next Wave B, and so on. The SPX at this point has four wave degrees left to complete.

The recent high of 1597.35 completed Wave B from 1292.66. The majority of this week was spent completing Waves 1-5 of Wave C, which appears to have ended at 1536.03. Friday’s rally may also have completed Wave D of this sequence, meaning one more move down to complete Wave E.

Assuming that Wave C completed at 1536.03, it seems that there are two possibilities as to have this wave will complete. Going back to my earlier description of inverted corrective waves, they can complete in one of two ways. The first is in the form of a zig-zag from Wave B. This resolution is common in nested wave structure. Therefore I would expect a small correction from the Wave C low, followed by another move to the downside. If Friday’s move was the corrective move, the market would be poised to move lower from this point. If Friday’s high of 1555.89 turns out to be Wave D, my target for Wave E would be between 1495 and 1448. If this structure does end in a zig-zag type fashion, I would expect Wave E to be longer than Wave C. 1597.35-1536.03=61.32. 1555.89-6132=1494.57. This gives the upper bound of my range. 1448 is the lowest price at which my model would be satisfied given the already completed wave structure.

The second possibility is the more intriguing. As mentioned earlier, the second way an inverted corrective wave can resolve, is to have Waves C, D, and E to complete with the look of a running flat. In this scenario, with Wave C completed, I would expect Wave D to carry above the start of Wave C, which would be 1597.35. Wave E would then complete above the end of Wave C, which is 1536.03. If the market moves above 1555.89, the possibility of this scenario would increase. 1561 would be the next resistance level, and then 1579 beyond that.

Thank you.