Wednesday's Market 07/17/2013

It certainly has been an interesting couple of days for the market. As of the close on Friday, I was still looking for a pull back of around 9-10 points, followed by another move higher. It would now appear that pull back actually occurred on Friday, and was only the 5 point move from 1677.41 to 1672.33. That was followed by a move higher that culminated at the open on Monday at 1681.99. After another pull back to 1677.89, the SPX made a final move to 1684.51.

This last move to 1684.51 most likely completed a 5 Wave sequence from 1604.57. From that high on Monday, the SPX dropped to 1671.84 on Tuesday. My current count would indicate that the SPX completed a 5 Wave sequence from the 1560.33 low at 1626.61. The most likely count from that point is an unfolding inverted corrective Wave 2 from that high. So far, the index has completed 3 of the 5 waves at 1604.57-1684.51-1671.84.

From Tuesday’s 1671.84 low, the index appears to have formed 4 waves of a sequence thus far. After an initial move higher to 1677.14, the SPX pulled back to 1672.99. The index then opened higher this morning, reaching 1683.07 after the first few minute. After pulling back to 1678.58, the SPX continued higher, finally reaching 1684.75. This completed the third wave from 1671.84. The action turned choppy after that, with the SPX pulling back to 1678.64, rallying to 1683.46, and finally pulling back to 1678.12.

If my count is correct, the SPX should now continue higher. This wave could unfold in several ways, but if it unfolds in a simple 5 Wave sequence, my target at this point would be 1718. This move from 1560.33 has been difficult to follow, so it is prudent to use caution going forward. If the SPX falls below 1678.12, my count would be in danger, and a move below 1671.84 would mean it was wrong.

Thank you.

Friday's Market 07/12/2013

Considering the volatility the indices have experienced lately today was in comparison rather tame. There was no gap opening this morning, as the markets opened flat, then moved above and below the flat line, settling at 1672.96. The SPX then tried to rally; moving above yesterday’s high, and rising to 1677.41. Another round of selling took the index down to 1672.33, where it found some support. The SPX continued to trade in a narrow range until late afternoon when the buyers came back. This buying led to an almost six point rally into the close.

I believe that lately I have been guilty of trying to have too many waves complete in too short a time. Taking today’s market action into consideration, it now appears that Thursday’s 1671.03 high marked the end of a sequence from 1647.66, and not 1671.00 as I had thought. As I mentioned before, this wave completed without a complex corrective wave, which usually results in a higher degree wave forming from the previous low. That seems to be exactly what happened, as this morning’s 1677.41 high completed the third wave, and this afternoon’s high of 1679.74 completing the fifth.

With the sequence from 1647.66 completed, the next step is to examine the sequence completed so far from 1604.57. The structure so far consists of a 5 wave sequence that completed at 1627.06, a pullback, another sequence completed at 1657.92, another pullback, and now a third sequence higher that completed today at 1679.74. Taken together, these 5 waves do not yet appear to complete an entire sequence from the 1647.66 low, which makes it most likely that the SPX is forming a complex correction.

Looking at the first pullback from 1627.06, we see that it was just over 12 points, and touched the 55 period EMA. The second pullback was just over 10 points, and again touched the 55 period EMA. If the SPX is indeed forming an inverted corrective wave as I suspect, I would expect another pullback to occur at this point. This pullback should be proportional to the previous two pullbacks, which means it should be slightly less than 10 points. Ideally, a pullback to 1670 would satisfy the parameters for an inverted corrective wave from 1627.06. This wave would be 1627.06-1614.71-1657.92-1647.66-1679.74-1670. As with the other two pullbacks, this one should touch the 55 period EMA, which at the moment sits at 1669.97. Looking at the sub-wave structure of the 5 wave sequence from 1647.66 to 1679.74, a first support level of 1670 is also indicated. This makes it seem likely that we can expect a pullback from today’s high to 1670.

Assuming that pullback occurs, it would mark the completion of an inverted corrective wave from 1627.06. This would then be Wave 2 from 1604.57, with waves 3, 4, and 5 needing to complete. Again, waves 3, and 5 need to be proportional to wave 1, which was just over 22 points (1604.57-1627.06). With the inverted corrective wave being so strong, it is likely that wave 3 will be somewhat smaller than wave 1, and wave 5 smaller than wave 3. Most often in cases like this, wave 5 completes just above the high of the corrective wave (1679.74), with the total length from wave 2 to wave 5 being approximately equal to wave 1. Given a pullback to 1670, this means this sequence should complete near 1692. At that point I would expect a slightly larger pullback.

The second support level indicated by the sub-wave structure of the just completed wave is 1659. Should the SPX fall to this level, I would need to consider that 1679.74 marked the high from the 1604.57 low. Either count suggests higher prices lie ahead.

I would look for a pull back to 1670, followed by a move higher to 1690-1692. That should be followed by a slightly larger pullback. If the SPX falls to 1659, I would expect higher than that 1690-1692 level.

Thank you. 

Thursday's Market 07/11/2013

It was another gap up open for the SPX today. And today I am not just making a joke. After that gap up open, the SPX moved to 1671.00 before falling back. The index slipped to 1666.29 before resuming the rally. First, the SPX made a slightly higher high at 1671.03, and then fell back to 1668.35. After moving sideways into the early afternoon, the SPX began to rally again, and quickly moved to 1675.08. After another small pullback, the index continued to move higher into the close, topping at 1676.63.

Yesterday I said that I was looking for a move higher, giving a target of 1666, and then expected a small pullback before another move higher. The SPX did open higher, moving slightly higher than my target, but the pullback from that high stopped at 1666.

It would appear that the open to 1671.00 completed the 5^th wave from yesterday afternoon’s 1647.66 low. By my count, that was Wave 3 from 1604.57. The small pullback that followed was most likely Wave 4, with Wave 5 from 1604.57 now underway. I expect this wave to end at 1689-1690. If the SPX moves to this level, I would then expect the 20 point or so correction I spoke of yesterday.

On a cautionary note, the sequence from 1647.66 to 1671.00 contained no complex corrective wave. Often this results in a secondary sequence forming, and such a sequence may have topped this afternoon at 1676.63. If the SPX falls below 1672.77, this would be the most likely scenario. I would expect support to be at 1670, and then 1661.

I am looking for the SPX to move to 1689-1690. Support should be at 1670, and then 1661.

Thank you.