Tuesday's Market 09/03/2013

The day started off as expected, with the SPX gapping up at the open, and then continuing higher, stopping right at the 1651 resistance level. The index spent much of the remainder of the day giving back most of its gains. The SPX dropped steadily to 1633, and then moved higher into the close, reaching 1641 before pulling back slightly.

I had indicated in my last post that the SPX had likely completed a semi-inverted corrective wave Friday at 1628.05. This would result in a strong move higher, which occurred this morning. From that high, the SPX completed a 5 wave sequence to the downside, which completed at 1633.41. There were a couple of surprising things about today’s action, which I will now explain.

On August 16^th, I posted this chart, which outlined a likely path for the SPX:

The entire post can be found here, http://5wavemodel.blogspot.com/2013/08/fridays-market-08162013.html, but essentially showed a semi-inverted corrective wave, such as we saw on Friday, from the 1687 high. This wave would have the SPX moving lower from 1709 to either 1651 or 1621, then rally to 1685, which would be followed by a final move lower to end between 1560, and 1542. This is one of several possible scenarios, but after the appearance of the semi-inverted corrective wave on Friday, which indicated a strong possibility of a rally to the 1685 level, this scenario once again seemed most likely.

As I said, the SPX would have to rally to near the 1685 level to project a final wave to 1560-1542. Today I was looking for a move up to 1645, followed by a small pullback, which would then target 1685. The first surprise today was that the initial move carried to 1651. The next surprise was that the ensuing correction seems to have ended at 1633. If the pullback to 1633 was wave 4 from 1627, wave 5 would project to a minimum of 1693, which would exceed the limit of 1687 necessary for this larger corrective wave scenario. Given the 1651 high, this corrective wave should carry below 1632.

The SPX is now at a point of decision, and what happens here should give an indication of what is to come. If the SPX holds above 1633, and then rallies above 1651, it seems likely that the index will test the 1709 high, and surpass it. If the SPX pulls back to 1632-1628, and then rallies above 1651, I would expect a rally to 1685, and then, possibly a decline to 1560-1542. If the SPX breaks the 1627 low before getting above 1651, 1542 might be an optimistic target.

At this point I would be inclined to expect a further rally, with 1685 being a good target level. I will, however be keeping a close eye on 1627.

I believe I have pointed this out on at least one other occasion, and the larger wave structure is not exactly analogous, but the decline from 1422 in April 2012, featured a drop to 1357.38, followed by a semi-inverted corrective wave which carried the SPX back to 1415, before a precipitous drop to 1266.74.

Friday's Market 08/30/2013

Following a virtually flat open, the SPX bounced slightly to 1640.08 before drifting lower through the morning hours of Friday’s trading session. BY mid-day the index had fallen to 1630.85 with only small bounces higher. At that point the SPX bounced again to 1634 before making another move lower to 1628.43. That’s when things got interesting. The index rose sharply to 1636, fell back to 1631, and then rose again to 1635.80. That move was short-lived, as the SPX fell again to a new intra-day low at 1628.05, before rising quickly in the last few minutes of trading to 1634.06.

Counting from Thursday’s 1646.30 high, the SPX completed a 5 wave sequence at 1633.91. This is denoted by the yellow “C?”. After a small bounce higher to 1636.42, the index then completed an extremely complex 5 wave sequence that terminated at 1628.05. This can be then counted as 3 waves down from the 1646.30 high. Looking at the 15 minute chart from the 1627.47 low, I have been counting the move to 1646 as 3 waves higher, 1641.18-1630.88-1646.41. I have mentioned in the past a complex corrective wave that I refer to as a semi-inverted corrective wave. This type of wave has very specific properties, but is difficult to identify during its formation. If the trend is higher, the first wave of this corrective wave is to the downside. The second wave is to the upside, and carries above the previous high. The third and fourth waves complete within the Wave 1 high and the Wave A low. The fifth wave finishes below the third, but above the origin of Wave 1.

Looking at the entire move from 1627.47, the move to 1641.18 can be labeled Wave 1. 1630.88 can then be considered Wave A, and 1646.41 Wave B. The first wave lower from 1646.41 completed at 1633.91, which is within the 1630.88-1641.18 range, and the second wave, 1636.42, within that same range. The last move, to 1628.05, completed below 1630.88, and above 1627.47. This sequence must also satisfy my model’s criteria for a completed wave, which it does. It seems likely, at this point, that the move from 1627.47 to 1641.18 was a Wave 1, and the subsequent move to 1628.05 a complex corrective Wave 2. These types of waves generally result in extremely powerful and swift moves.

The SPX now could have, by my count, completed 5 waves down from 1709, and near the 1621 support level. Considering that the type of wave that may have completed Friday, the market may be ready to start a sustained rally. While I am not ready to call this the end of this corrective phase, I think it is becoming a real possibility.

A move below 1627.47 obviously invalidates this scenario. Support remains at 1621. Resistance is at 1651, 1669, and 1685.

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.