Wednesday's Market 09/04/2013

After opening slightly higher than Tuesday’s close, the SPX dipped briefly into negative territory before moving higher once again. The index climbed steadily to 1655.72 by mid-afternoon, before finally taking a breather. The SPX pulled back to 1652.51, then bounced back to 1655.35, before pulling back again to 1651.22 before the close.

Yesterday I presented three scenarios, of which the first one was the SPX holding above 1633, and then eclipsing yesterday’s 1651.35 high. I noted that if this scenario played out, I would expect the index to test the 1709, and possibly surpass it.

The larger scenario I presented yesterday was that the SPX was forming a semi-inverted corrective wave from the 1687 high. For this scenario to be correct, the SPX cannot surpass that 1687 high. I also noted that the current wave structure from the 1627.47 low pointed to a minimum target of 1693 for this wave. Given today’s action, it appears that 1693 would be the next minimum target, which would nullify the semi-inverted corrective wave scenario. The optimal target for this wave would be 1745, which makes a different scenario most likely.

As those who have followed me may remember, I had been looking for a minimum target of 1776 for the wave from the 1560 low. That would complete an entire 5 wave sequence from the October 2011 low of 1074.77. Using the optimal target of 1745 for this wave, it is possible to extrapolate a 5 wave sequence from 1560.33 as 1709.24-1627.47-1745-1680-1773. This fits quite nicely with my 1776 target.

On a shorter term horizon, the initial move to 1641.15 this morning appears to be a wave 1 from yesterday afternoon’s 1633 low. The SPX then completed an inverted corrective wave that went 1637.16-1655.72-1652.51-1655.35-1651.22. This also completed right at the 1651 support level. If this count is correct, the SPX should continue higher at this point. Resistance is at 1669, and then 1685. Support is at 1651, and then 1621. A move below 1634 would put this count in jeopardy, and a move below 1627 would invalidate it.

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.