Friday's Market 08/16/2013

Coming off the brutal down move from yesterday, the SPX had a somewhat calmer session today, trading within a narrower 13 point range, but still moving to the downside. The index started slightly to the downside, and shed several more points as it fell to 1656.17. The SPX then started to move to the upside rising first to 1662.43, and then 1663.60 after a small pullback. That high brought on another round of selling, as the index fell into the afternoon, hitting another near term low of 1652.61. Another rebound followed, but after rising to 1659.55, the SPX fell again into the close.

Yesterday I said that the SPX had completed a 5 wave sequence down at 1658.69, would likely experience more movement to the downside, with support at 1651, and then 1621. The SPX did move further to the downside today, and made a low at 1652.61. It appears that the index completed a larger degree sequence from the 1709 high today. Using yesterday’s 1658.69 low as Wave 1, the rebound to 1664.58 was Wave 2. This morning’s drop to 1656.17 completed Wave 3, and was followed by an inverted corrective wave 4 that completed at 1659.55. The late afternoon fade to 1655.93 would then appear to complete Wave 5, and the entire sequence from 1709.

The SPX has now completed a 5 wave sequence from 1709 right at the first support level. This was accompanied by extreme RSI(5) readings on the 60 Minute chart, and a positive divergence. The short term chart shows a lower RSI(5) reading as compared with the 1652.61 low, with a higher index level. This also could be a short term positive. A move above 1660 would likely indicate that a rebound is underway, with resistance at 1669, and then 1685. Support is at 1651, and then 1621. A move below the 1651 area would indicate the SPX may be headed to the next support level.

While it is still possible that this is the end of the correction, and that the market is on its way higher, it is becoming more and more likely that there is a substantial move down ahead before the move higher can begin.  My reason for the 1776 target level has been the longer term count as seen on the Daily chart. I have counted Waves 1, 2, and 3 completing as 1292.66-1158.66-1422.38. I then saw an inverted corrective wave completing as 1266.74-1470.96-1343.35-1687.18-1560.33. The alternative counts would require many more waves to complete before the end of the uptrend from 1074.77, and seemed very unlikely. A very interesting alternative has begun to emerge. In this scenario, everything up to the 1687.18 high would remain the same. It is then possible for Wave E of that large inverted corrective wave to be forming a complex wave, in this case, a semi-inverted corrective wave. Wave A would be the move from 1687.18 to 1560.33. Wave B from 1560.33 to 1709.24, and Wave C underway. In these complex waves Wave C would need to complete above 1560.33, Wave D below 1687.18, and then Wave E below 1560.33.

As I have mentioned, support is at 1651, and then 1621, both above 1560.33. Resistance is at 1669, and then 1685, both below 1687.18. The other thing I need to keep n mind is the fact that the end of this wave must also complete within the range to complete the longer term inverted corrective wave, which has a lower boundary of 1542. This gives a fairly narrow range to work with, as this wave must then complete below 1560.33, and above 1542. An initial move to 1651 or 1621, followed by a rebound to 1685, would both satisfy those conditions. In the first case Wave E would project to 1651, and in the second, 1654.

In essence this means that the entire move from 1687.18 could be one complex correction, projecting a low of between 1560.33 and 1542. Since the low of this move would approximate the 1560.33 low, the ensuing move higher would project into the same range, namely the 1776 area.

Thursday's Market 08/15/2013

After finally completing a 5 wave sequence from 1709 yesterday, the market took little time deciding on its next move. After a small bounce yesterday afternoon, the SPX gapped down n a big way this morning. The index fell below 1670 at the open, and continued lower until it reached 1659. The SPX tried to recover from that point, but could only make it to 1668 before turning lower once again. The index finally hit the low of the day at 1658.59, after tumbling nearly 27 points. From that point the index moved slightly higher to 1664.58, and then ended the day trading within that narrow range.

I mentioned yesterday that the SPX had finally completed a 5 wave sequence from 1709 at 1684.83. The drop today was then part of an inverted corrective wave that ended at 1667.60, with the index then completing a higher degree sequence from 1709 at 1658.59. This move invalidates my longer term count from 1560.33, which I had been viewing as a Wave 1 to 1626.61, and was being followed by an inverted corrective wave. The next most likely count has three waves completing from 1560.33 to 1709.24, with wave 4 in progress now. This count would still project a wave 5 high in the 1776 range I have been mentioning.

The next possibility is that the SPX completed 5 waves from 1560.33 to 1709. This would open up several options, but generally point to a low above 1560, with an ensuing high around 1776.

The SPX hit extreme oversold readings today, and so it would not be surprising to see a bounce at any point, but it is likely that there will be some more movement to the downside.

Support is at 1651, and the 1621, with resistance at 1669, and then 1685.

Wednesday's Market 08/14/2013

Similar to yesterday, the SPX moved slightly higher at the open, and then quickly rolled over. After falling to 1691, the index bounced back to 1694 before falling further. This downside action, with small bounces continued until the SPX had fallen to 1684.92. From there it bounced to 1689.50 before falling once again into the close, holding just above the 1684.92 low.

This market has been frustrating since the 1709 high in the sense that it had not completed a clear 5 wave sequence from that point. Although the SPX had reached a level where an inverted corrective wave from 1626.61 had likely completed, it was difficult to know exactly where in the count the market was. Compounding that fact, the inverted corrective wave could possibly have completed in two distinct ways, one requiring a 5 wave sequence from 1709, and the other needing 3 waves from that high. Today, for the first time, I can count a 5 wave sequence from that high.

I chose to show the 5 Minute chart today since it shows the whole structure from 1709. The SPX first completed a wave 1 at 1704.32. This was followed by an inverted corrective wave 2 that completed at 1700.18. Wave 3 completed at 1688.38, and was followed by another inverted corrective wave, this time for wave 4, which completed at 1696.81. Wave 5 then completed today at 1684.83.

This sequence completed within the area needed to complete an inverted corrective wave from 1626.61. 1676 is the lower limit of this completion zone, so if the SPX falls below that level, I would be looking for further downside. It is still possible that this only completes Wave C of that inverted corrective wave, which means we should see a rally, followed by another pullback similar in magnitude to this one. A move above 1709 would signal a resumption of the uptrend, which should carry to a minimum of 1776.