Monday's Market 10/28/2013

The SPX hit another all time high today, something that has become commonplace these days. The market has once again entered a stage where it seems that it will never go down, a stage it has been in several times during this bull run. The market will, of course, go down, but it has become a dangerous game to try to pinpoint when. I have underestimated this latest rise in the market, with my 1745 target having been taken out several days ago, with very little pressure to the downside. I was early in calling for a possible downward move, as it has become apparent that 1745 was not the completion of this sequence from 1646.47.

This sequence is reminiscent of the rise from 1627 to 1730. Both contained choppy upside moves, with very few pullbacks of any consequence. Looking at the end of that move, from the 1704.95 high on September 16^th, the action is quite similar to the action from the recent 1759.33 high. Both highs were followed by a small pullback, followed by new highs which formed in a very narrow upward biased channel. The previous move was then followed by another small pullback, and then a sharp move to new highs that proved to be the precursor of a nearly 85 point pullback. This is noteworthy as both have occurred leading into an FOMC meeting.

Looking at this sequence from the 1646.47 low, the most predominant feature is the inverted corrective wave which formed between 1703.44 and 1740.50. Those have been the only significant pullbacks of this rally. The most likely scenario is that the move from 1646.47 to 1703.44 was wave 1 of this sequence. The inverted corrective wave would then be wave 2. From that low, it is possible that wave 3 ended at 1758.46, wave 4 was the small pullback to 1752.45, and the SPX is now in wave 5 of that sequence. The target for this scenario would be between current levels and 1773. It is also possible that the move from 1740.50 to current levels is wave 3, which would be followed by a pullback, and then one more move higher. This would be similar to the scenario I described above.

For now, a move below 1740.50 would most likely signal an end of this sequence. Until then it is difficult to fight the momentum. 

Wednesday's Market 10/23/2013

The SPX gapped down at the open this morning, dropping below 1742. After staging a small rally, the index continued lower, dropping back to 1742, rallying to 1746, and finally reaching a low of 1740.50. This completed a 5 wave sequence from yesterday afternoon’s 1758.16 high. As has been the pattern lately, the SPX reversed course by late morning, and started working its way higher. The index rallied to 1746.66, fell back to 1742.51, and then rallied again to 1748.39 by mid-afternoon. The SPX then fell back to 1744.72 before moving higher into the close. This may have formed waves 1-4 of a sequence to the upside.

This would be interesting because it would give a target for wave 5 of 1750-1751. After yesterday’s pullback to 1747.58 after the 1759.33 high, the SPX completed three waves to the upside at 1755.51-1751.91-1758.16. If a sequence from today’s low completes at 1750-1751, it would complete an inverted corrective wave from the 1747.58 low. This would indicate a continuation of the move lower to follow.

I am still looking for the SPX to move lower. There are several support levels between 1719 and 1661 that would fit the target range for this low. Short term, it looks like the SPX may open higher, to 1750-1751, to complete an inverted corrective wave from 1747.58. This would set the stage for another move lower, with support at 1719.

Tuesday's Market 10/22/2013

Well that was a big miss. I had been looking at yesterday’s 1747.79 high as the completion of a 5 wave sequence from the 1646.47 low. That certainly was not the case. While today’s move above that high would normally point to the continuation of the current trend, I will remain cautiously neutral at the moment, as there is a chance that a sequence from 1646.47 concluded today.

The suspense did not last long this morning, as the SPX gapped higher at the open and surpassed yesterday’s high within the first minute of trading. From there the index rose above 1751 before a very small pullback. After that the SPX shot up to 1759.33. It appeared this spike higher would be short lived, as the index quickly reversed course and dropped back near the opening levels to 1747.58. The SPX then chopped higher through the afternoon, making it above 1758 before falling back to 1754 near the close.

Looking at the waves from yesterday’s 1747.79 high, the SPX completed 3 waves to the downside at 1740.67 as I mentioned yesterday. This was followed by a single sequence to today’s high of 1759.33. The index then completed a sequence lower with the ensuing drop to 1747.58. After that low was put in, it appears the index completed 3 waves to the upside.

Re-evaluating my count from 1695.93, I still see wave 1 completing at 1704.01. This was followed by an inverted corrective wave 2 that completed at 1714.12, with wave 3 then completing at 1729.64. I had been counting wave 4 at 1725.93, with wave 5 completing at 1747.79. If that count is correct, the 3 waves down yesterday from that high, and the drop today from 1759.33 would complete an inverted corrective wave, meaning another move to the upside would be in order.

It is also possible that from wave 3 mentioned above, an inverted corrective wave 4 followed. This would have ended at yesterday’s low of 1740.67. Today’s high of 1759.33 would then be wave 5. This would be unusual since normally there is only one complex corrective wave in a sequence, but with wave 2 being a complex wave also, this would make two. But this has been a strange market, so it cannot be ruled out.

A move above today’s high would mean the first scenario is correct, a drop below today’s low of 1748 the second. My next resistance level would be 1776. This is a level at which the sequence from 1074.77 could possibly complete. At the moment I see this as a low probability, but it is worth noting.

Support is at 1723, and then 1703.