Thursday's Market 04/25/2013

In yesterday’s post I said a 5 Wave sequence from 1563.03 could complete something like 1587-1585-1591. Today it did complete as 1586.33-1585.55-1590.47. But the market was not quite done, as it then also completed a sequence from the 1536.03 low.

It was another gap up opening for the market, with the SPX reaching 1585 earl on. The market then pulled back to 1581 before continuing the move higher. And move higher it did, hitting 1586.33, pulling back slightly to 1585.55, and then reaching 1590.47. After dipping less than three points, the SPX kept rising until it hit 1592.64. A sell-off took hold from there, with the SPX falling to 1583 before moving slightly higher into the close.

The initial move today completed a 5 Wave sequence from 1563.03. As I mentioned a couple of days ago, it was then possible that a complex corrective wave would form from the 1579.58 high. The SPX did just that, completing that corrective wave at 1587.85 (1579.58-1563.03-1590.47-1588.77-1590.21-1587.85). Following that a sequence completed from the 1536.03 low as 1536.03-1579.58-1587.85-1591.76-1590.89-1592.64.The sell-off to 1583.23 then completed a sequence from that high, right at a support level indicated by the previous wave.

With a 5 Wave sequence completed from the 1536.03, the question is now whether the market will resume the downtrend from 1597. If this is not the end of the current move, we are likely very close to the end. At the moment I will remain neutral as to the direction of the next move, but will be looking for a specific scenario that would indicate the end of this move.

The next resistance level is 1595-1598. If the SPX moves into that level, pulls back, and then makes another higher high, it would complete another sequence from 1536 as a rising wedge. A breakout from that wedge would indicate the next move to the downside is underway.

As mentioned, the next resistance is 1595-1598, with the next support level at 1566.

Thank you.

Wednesday's Market 04/24/2013

After the wild swings in the market yesterday, today’s action was somewhat muted.  The SPX traded in a narrow range, in a series of higher highs, and lower lows. The action of the market today would seem to confirm my analysis from yesterday.

After falling at the open, the SPX quickly reversed and rose slightly above yesterday’s close to 1581.34, which was near my 1580 resistance level. The market pulled back after that, falling back to 1575.80. The SPX then turned higher once again, rising to 1583.00. One more pullback towards the close took the SPX down to 1577.90.

Yesterday I said the market completed a 5 Wave sequence from 1536.03 at 1579.78. I said I thought the market was still heading higher, and labeled that high as Wave 1, and the sharp drop from that high Wave 2. Wave 1of 3 to 1578.55 was next, and was followed by a 5 Wave sequence to the downside, which could have been Wave 2 of 3. I then said it was quite possible that the market would form a complex corrective wave from either the 1578.55, or 1579.78, high.

It would appear that the market did exactly that, forming a 5 Wave sequence from 1578.55 as 1578.55-1573.13-1581.34-1575.80-1583.00-1577.90. This would be an inverted corrective wave, and would complete Wave 2 of 3. I would now expect another move higher, as the SPX needs to complete Waves 3, 4, and 5 of 3. As I said yesterday, I would expect this next move to carry to 1591, perhaps as 1577.90-1587-1585-1591.

There is a negative divergence on the 60 Minute chart, with the SPX coming off very overbought levels. However, the small decline into the close took the Hourly RSI into neutral territory, while a positive divergence appeared on the 3 Minute chart, and the 15 Minute chart showed oversold levels. This could set up a move higher.

Often, after a sharp move as we saw from 1536 to 1579, the market can make several higher highs to form a 5 Wave sequence resembling a wedge. When this happens, it usually means a sharp move in the opposite direction. We can see that set-up here, as three separate highs can be counted from both the 1536.03, and 1563.03 lows. From 1536 we have the sequence 1536.03-1579.58-1573.13-1581.34-1575.80-1583.00. This has an R^2 value of only .8134, well below my model’s threshold. From 1563 we can see the sequence 1563.03-1578.55-1573.13-1581.34-1575.80-1583.00. This has an even lower R^2 value of .9685, still well below the threshold. For these reasons I would discount both of these scenarios.

It appears the SPX has now completed two waves from the 1536 low, and two waves from the 1563 low. I expect the market to next move to 1591, via 1577.90-1587-1585-1591. This scenario will hold true unless the SPX falls below 1576.90. In my view, even a breach of this level would simply mean a further correction from either the 1578.55 or 1579.78 high, as I still believe Wave D has further to go on the upside before the next move down.

Thank you.

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.