Friday's Market 04/26/2013

The market opened flat today, meandered lower, and then rallied to 1586. When that rally fizzled, the SPX continued the move lower from the 1592 high. The SPX completed a 5 Wave sequence from that high at 1579.62, and then continued lower, completing a larger degree sequence from that high at 1577.56. At that point the market staged a pretty good rally, rising to 1585.68, where it completed a sequence from the short term low, and then moved lower into the close.

The 1592.64 high marked the termination point of a 5 Wave sequence off the 1536.03 low. From that point, the SPX has now completed a sequence to the downside, followed by a sequence higher. It is still unclear as to whether this is the start of the next move lower, which take out the 1536 low, or a corrective wave indicating another move above 1597. Short term, I think the next move is lower, with a target of 1566. I will provide a more detailed update over the weekend.

Thank you.

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.