Thursday's Market 07/18/2013

Continuing the move up off yesterday’s 1678.12 low, the SPX moved higher at the open, moving up past 1684 at the outset. After a small pullback, the index continued higher, hardly pausing until it surpassed the previous all-time high, and rising to 1693.12. From there, the SPX started giving back its gains, finally falling to 1687.10. Another rally followed, however this one failed to reach new highs, failing at 1691.53. The index then dropped to 1687.52 before rising slightly into the close.

Yesterday I stated that it appeared the SPX had now completed 3 Waves from the 1560.33 low, 1626.61-1604.57-1684.51.Tuesday’s pullback to 1671.84 could be the fourth wave. From that low, I then counted 4 waves, 1677.14-1672.99-1684.75-1678.12. Given that count, it was likely that the index would move higher.

Today’s action formed a 5 wave sequence from 1678.12 to the high of 1693.12. The decline from that point was interesting, with a 5 wave sequence completing at 1688.28. It then appears that a rather rare corrective wave 2 completed at 1691.53. Technically this is often referred to as an expanding triangle, and it went 1689.05-1688.10-1689.36-1687.10-1691.53. Waves 3, 4, and 5 from 1693.12 then completed as 1687.99-1689.37-1687.52. This should now complete waves 1, and 2 of 5 from the 1671.84 low. My target for this wave remains at 1718. If that target is met I am eventually looking for a high above 1776 before a substantial correction.

This seems to be the point that tends to occur within each wave where there is an extreme amount of uncertainty. I do have some concerns due to some technical aspects of the market, but my count still indicates we will see higher prices.

If the market moves below 1671.84 at this point, my current count would be wrong, and lower prices may be on the way. For the moment, I will continue with my current count. Again, I expect the current wave to reach 1718, and ultimately we should see prices above 1776. A move below 1672 would change my view.

Thank you.

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.