Thursday's Market 08/29/2013

As I indicated may be the case yesterday, the SPX opened to the downside, gapping lower to 1630.88. The index moved sharply higher off that low, quickly surpassing yesterday’s 1641.18 high before pausing. Following that slight pause, the index continued higher, moving to 1645.62, and then chopping higher until it reached 1646.41. After that the SPX turned lower for the remainder of the day, dropping back to 1643 by early afternoon. After a bounce to 1645 the index fell to 1640, and after another bounce to 1643, fell back to 1636.69 by the close.

I mentioned yesterday that the SPX may complete a 5 wave sequence at 1630, and if it then rose above the 1641.18 high, that it may continue to rally towards 1651. The index did complete that sequence this morning at 1630.88, and then moved above that high. The rally fell short of the 1651 level, as the SPX lost most of its gains by the close. The index appeared to complete a sequence higher at 1646.30, marking the third sequence from the 1627.47 low, as 1641.18-1630.88-1646.30. The move lower from that high does not appear to have completed a sequence.

At this point, the three waves higher off the 1627 low would seem to be part of a complex corrective wave, and it is still likely that the SPX will move lower, possibly into the 1621 support level, to complete a sequence from 1669.51. There is a possible count that points to this area as completing a 5 wave sequence from the 1709.24 high. A move to 1621 would complete that sequence right at a support level. Looking longer term, there are three likely scenarios. The first and the one I have spoken most about, calls for the SPX to rally to the 1685 level, before making another leg down to 1540. The second would have the SPX rallying, but falling short of 1685, and would likely lead to a low below 1540. The third has this as the end of the corrective phase, and would be followed by new all-time highs. I have not been convinced that this correction would carry below 1560, so at the moment, this is the scenario that I would favor. A lot will depend on the support/resistance level that I have mentioned, 1621, 1651, 1668, and 1685. A move below the 1621 level would favor the most bearish scenario at this point.

Yesterday I gave a scenario of this wave playing out as 1621-1628-1618, and that still seems to be a good guideline. A move above 1646 would point to 1651, and then 1668 as the next resistance levels.

Wednesday's Market 08/28/2013

The SPX started off slightly to the downside this morning, taking out yesterday’s low by a slim margin before moving higher. That opening move took the index to 1627.47 where it quickly reversed direction. The SPX soon was above 1634, and after a brief four point pullback, continued higher to 1637.37. After another minor pullback, the SPX started a third leg higher for the day, with this one carrying to 1641.18. From that point the index digested its gains into the close, first falling back to 1639, and then 1635.34. After a bounce higher to 1640.12, the index fell to 1635.10 near the close.

Yesterday I said that I expected the SPX to move higher, and after the initial drop to 1627 it did just that. 1627 appears to have completed a 5 wave sequence from 1669.51, but there are some that indicate that may not have completed the entire wave from that point. From the 1627.47 low the SPX completed a 5 wave sequence higher as 1634.07-1630.44-1637.37-1634.99-1641.18. It appears that the index is in the 5^th wave from that high, but has yet to complete a 5 wave sequence.

With that in mind, it is likely that the market should move lower. Given the waves already completed, it would complete a sequence at 1630. If the SPX moves down to 1630, and then back above 1641, I would then expect the move higher to continue to 1651.

The move to 1641 failed to reach certain parameters that would be indicative of the completion of the wave from 1669.51. If the SPX continues lower, and breaks below 1627, this move is likely to continue to 1618. This may play out as 1621-1628-1618. This would allow this third wave from the 1709 high to complete very close to the 1621 support level. From that point the SPX could rally.

Tuesday's Market 08/27/2013

The SPX opened with a gap to the downside, dropping initially to 1640.36, which was followed by a small bounce, and then 1638.24. After another bounce that lifted the index to 1643.99, the SPX spent the remainder of the trading session drifting ever lower, finding the low of the day at 1629.05 shortly before the close.

Today’s action in the SPX would appear to be a continuation of a single wave from yesterday’s 1669.51 high. From that high, the index completed the first wave lower at 1666.76. After then completing waves A, B, and C of an inverted corrective wave, the index began to form wave D, which began to sub-divide. The first 4 waves completed near the close yesterday afternoon, and completed this morning when the SPX reached 1638.24. The bounce off of that low to 1643.99 then completed wave E, and the inverted corrective wave 2 from 1666.76. As the market drifted lower this afternoon, it appears to have completed waves 3, 4, and 5 from that high at 1634.27-1638.42-1630.41.

Looking at this entire move from the al-time high of 1709.36, I count an initial wave down at 1684.91. From there the SPX completed a complex inverted corrective wave that went 1700.18-1646.00-1661.83-1654.81-1669.51. The wave that completed today at 1630.41 thus completed the third wave down from the all-time high. Given that scenario, I would expect the market to move higher at this point, before completing one more move down.

Since this move began, I have pointed to four levels of support/resistance. Those levels have been 1685, 1669, 1651, and 1621. The initial move lower reached the 1685 support level, with the next move lower pausing at the 1651 level before breaking below it. The recent high took the SPX to the 1669 resistance level. A move back to 1651 at this point would target 1621 as the low of the 5^th wave from 1709.

If this scenario plays out, the market will be at a very decisive point. As I articulated before, a move to 1621-1685-1540 would complete a semi-inverted corrective wave from 1687. I am still not convinced that this move will carry below 1560, so if the SPX gets back to 1685, there is a good chance that it will continue higher. There are still several ways in which this market can go, so at this point it is best to keep a close watch on the critical levels. If the SPX fails to reach 1651, it could be headed much lower. A decisive break of the 1621 level would also point to lower levels. If the SPX can find support at 1621, and then rally above 1669, it could be an indication that this corrective wave may be over.