Weekend Outlook 09/14/2013

Last Friday, with the SPX at 1655, I targeted the 1680-1687 range as a possible battleground for the bulls and the bears. On Tuesday morning the index moved above 1680, and the remainder of the week was spent between 1678.29, and 1689.97. On Wednesday the SPX moved above 1687.18, the upper limit for my semi-inverted corrective wave scenario that would have targeted a move lower to below 1560. This means that it is most likely that the index will continue higher, likely taking out the 1709 all-time high.

This has been a trying week for bulls and bears alike, and it seems only fitting that the market should head into the weekend without a clear resolution. I am still looking for the market to move higher, but I would feel more confident if the SPX could clear this 1685 support zone with some authority. Nevertheless, the SPX has moved above what I consider a critical level, 1687, and the wave structure still supports a move higher.

From the 1627.47 low, the SPX completed a 5 wave sequence to 1641.18. From that point, it formed a semi-inverted corrective wave that terminated at 1628.05. It was at this point that I indicated the index was poised to make an extremely powerful move to the upside. This semi-inverted corrective wave turned out to be but the first wave of an extended inverted corrective wave that eventually completed at 1640.62. So from 1627.47 the SPX has completed a wave 1 at 1641.18, and a wave 2 at 1640.62. The next move higher was to 1664.83, and looks to be wave 3 from 1627. This was followed by another inverted corrective wave that completed wave 4 at 1681.96. This gives an optimal target of 1639 for wave 5, very close to my original 1645 target.

When the SPX moved off its 1560.33 low in late June, I set a target of 1776. This target came into question as the index pulled back off the 1709 high, and eventually found its way to 1627. In my post on 9/4/13, http://5wavemodel.blogspot.com/2013/09/wednesdays-market-09042013.html, I outlined a scenario where the SPX could still reach that target. This entails the index forming 5 waves from the 1560 low that would complete a sequence from 1074.77 at 1773. These waves would go something like 1709.24-1627.47-1745-1680-1773. Given the discussion above, this seems to be a likely scenario. This would not complete a sequence from the 666.79 low, so there should be at least one more move to the upside after that.

For the week ahead, I am looking for a continuation of the move higher from 1627, with a target of 1745. My current wave count requires the SPX do hold above 1682. A break of that level at this point and the index could correct further, with support at 1669, 1651, and then 1621.

Thursday's Market 09/12/2013

The SPX opened slightly higher this morning, moving up to 1689.29 before pulling back. After falling to 1685.71, the index turned higher, reaching 1689.97. After that, the SPX spent the rest of the day working its way lower, falling to 1682.30, and then bouncing to 1687.39 before falling back to 1681.96 just before the close.

Today’s 1689.97 high appears to complete the sequence from the 1654.45 low. The possible inverted corrective wave 4 I mentioned yesterday seems to have been incorrect, with the SPX actually completing a smaller degree wave sequence from 1678.29 to today’s high. From 1627.47 the market has now completed a sequence to 1641.18, which I see as Wave 1, followed by a complex corrective Wave 2 which completed at 1640.62.

From there I had been counting 1664.83 as Wave 3, 1654.45 as Wave 4, with Wave 5 possibly completing above 1683. With a 5 wave sequence from 1654.45 having now completed, it is possible that the SPX has reached at least a short term high. However, the entire move from 1640.62, Wave 2 from 1627, until today’s low at 1681.96, looks technically like a single wave. This would fit the inverted corrective wave scenario I spoke of yesterday, or the move from 1640.62 to 1654.45, was of a lesser degree than the move from 1627 to 1641.18. At the moment this scenario seems more likely.

This is supported by the move from 1664.83 to today’s low counting as an inverted corrective wave of some degree. This would mean the SPX should move higher off today’s 1681.96 low. This wave could possibly carry to 1676.70, but would more likely move higher from the open.

If the SPX moves below 1676.70, it would be most likely that a top from 1627 has been put in at 1689.97, and a pullback would then be expected. I think it more likely that the SPX will continue higher from this point, with 1745 remaining a likely target.

Support is at 1685, 1669, and then 1651.

Wednesday's Market 09/11/2013

The SPX opened to the downside this morning, slipping to 1680.90 before bouncing back to 1683.29. Another dip took it to 1678.70, just above the 1678.29 Wave 4 low I had mentioned yesterday was a critical level to watch. From there the index moved steadily higher, topping at 1688.13. Another dip took the SPX down to 1685.09, before a final push higher into the close took the index to 1688.59.

Although on the surface this appeared to be a fairly typical trading day, it is noteworthy for several reasons. The SPX fell to 1678.70, but remained above the critical 1678.29 level, which means my current count has not been invalidated. The index also rose above 1687.18 May 22^nd high. This means that the semi-inverted corrective wave, which would have indicated a move down to below 1560, is no longer applicable. This does not mean the market cannot go down, of course, simply that the given scenario no longer is possible. Lastly, the SPX did not enter the 1690-1697 range that would likely have completed both a 5 wave sequence from both 1654.45, and 1627.47.

Looking at the wave structure from 1683.77, which I see as Wave 3 from 1654.45, it now looks like the SPX has completed a complex corrective wave from that point, to today’s 1685.09 late afternoon low. This is unusual since Wave 2 was also a complex wave. Normally only wave 2 OR wave 4 is complex, but rarely both. If this is indeed the case, it has the effect of raising the upper limit for wave 5 to 1708. This would be above the upper limit of wave 5 from 1627 as I currently have it. If the wave from 1654 does complete above 1700, it would open the possibility that the wave from 1627 is also undergoing a complex wave 4, even though wave 2 was a complex wave. If so, the market could undergo a small correction, and then target Wave 5 from 1627 at 1745, the other target level I have been mentioning. This seems to fit quite nicely.

If this works out, the SPX should put in a near term top between 1700 and 1708, undergo a pullback that should hold above 1668, and then move up to 1745.

1678.29 remains a critical level, as a drop below that could mean the SPX has made a short term top. The probabilities now favor a move to new highs, with a target of 1745. That, of course, is not the same as saying that the market cannot go down. The SPX has now risen over 60 points from the 1627.47 low, and some short term indicators are now in overbought territory. Support is at 1685, 1669, and then 1651.

It would be nice to see new all-time highs, as that would increase even further the probability of an additional move higher, it looks like that confirmation signal may have to wait. At the moment I would look for at least a short term high from 1690 to 1708. Exactly where that top occurs may give further insight into the longer term outlook and wave structure.