Wednesday's Market 11/20/2013

The SPX gapped higher at the open, hit 1791.83, and then turned lower.  After closing that opening gap, the index turned higher, moving to 1795.73, slightly higher than yesterday’s high. I thought this would confirm a continuation of the up move, but I turned out to be wrong. From that high, the SPX formed a 5 wave sequence lower to 1789.21. Things then turned choppy, but set up the downside breakout to come. After that initial sequence lower, the SPX set up a nested inverted corrective wave. An inverted corrective wave is a corrective wave in which the second and fourth waves, generally corrective waves, are more powerful than the usual first, third, and fifth normally impulsive waves. The result is generally a corrective wave that completes beyond the end of the previous impulse wave.

After dropping from 1795.73 to 1789.21, the index formed three waves higher, which were waves A, B, and C, of the first inverted corrective wave. This was followed by another wave 1 to the downside, and another A, B, C higher. Wave D of this second inverted corrective wave broke out of the narrow trading range, and then bounced to 1791.50 to complete the corrective wave. The SPX then saw waves 3, 4, and 5 which took the index sharply lower. This then completed wave D of the second inverted corrective wave, and again was followed by waves 3, 4, and 5, taking the index sharply lower once again, all the way down to 1777.23.

From 1795.73, a 5 wave sequence was completed at 1777.23. I had thought an inverted corrective wave from 1773.44 had completed yesterday, but my count for this wave seems to be mistaken. I would now say that today’s low is a better choice for the completion of this wave, with it forming 1760.64-1801.34-1784.72-1795.73-1777.23.

My longer term outlook remains unchanged. I am still looking for the index to move higher, with a minimum target of 1828.

Tuesday's Market 11/19/2013

In the wake of yesterday’s new all time high and late afternoon sell-off, the SPX opened essentially flat, moved marginally higher, and then dropped below yesterday’s low to 1785.92. At that point the “buy the dip” mentality prevailed, and the index moved higher. It rose modestly above the 1794 support/resistance to 1795.51before running out of momentum, and rolling over once again. The first selling wave took the SPX to 1788.64, and after a bounce back to 1794 the second selling wave took the index down to 1784.72. The SPX tried to rally again, moving up to 1791 before falling back into the close.

After hitting a new all time high at 1802.33, the SPX has given back a little under 18 points. As I stated last week, I was looking for a pullback of slightly more than 11 points, and over the weekend I said a pullback to the 1784 area was most likely. The SPX looks to have completed a 5 wave sequence from the high at 1784.72, and within the range to complete the inverted corrective wave from 1773.44 that I was looking for. The index can still move lower without jeopardizing the count, with a move above 1795.51 likely signally the end of the pullback.

As I pointed out this weekend, I am looking for this wave to carry above 1828 to complete a sequence from 1746.20, 1560.33, and possibly 1074.77. If this wave falls short of the 1828 level the first scenario I outlined over the weekend would become more probable.

Weekend Outlook 11/17/2013

Since the inception of this bull market in March 2009, the SPX first completed a 5 wave sequence at 1219.80. A second sequence completed at 1010.91, and was followed by a sequence higher at 1370.58. After a fourth sequence completed at 1074.77, the index has embarked on a comparatively lengthy sequence higher. Since there appears to be no danger of the current sequence completing a sequence from 666.79, this bull would seem to have further to run.

Of more immediate interest is the current status of the sequence from 1074.77. In my Weekend Outlook on 10/20/13, (http://5wavemodel.blogspot.com/2013/10/weekend-outlook-10202013.html), I outlined a scenario in which the SPX was forming a sequence that eventually would be composed of 17 individual waves, with the index currently in the 13^th wave. It is difficult to estimate a target for this sequence at the moment, but it is a bullish scenario which likely would carry the SPX much higher. The key to this scenario is that from here until the completion of the sequence, the previous low cannot be broken. Since I have the current wave beginning at 1646.47, the ensuing decline would have to remain above that level. The same would be true for any subsequent declines until the final wave has completed.

Some of you may recall that prior to this I had proposed a different scenario suggesting that if a 5 wave sequence completed from the 1560.33 low above 1776, it may complete the sequence from 1074.77. Lately I have given this scenario a lower probability, but after spending quite a bit of time reviewing all my charts this past week, this scenario is once again looking very interesting. This count has waves 1, 2, and 3 from 1074.77 completing at 1292.66-1158.66-1422.38. From there the SPX formed a 5 wave inverted corrective wave 4 at 1266.74-1474.51-1343.35-1687.18-1560.33, and projects wave 5 to complete above 1776. Since the SPX has now surpassed that level, it seems prudent to at least give this count some merit.

So the key to this count is the sequence from 1560.33. From that low, 1709.36 marked the termination point of wave 1. The following correction to 1627.47 is what differentiates the two aforementioned scenarios. Up until this point, all the waves from 1074.77 are the same for the two scenarios, the only difference being the degree of the wave. For the first scenario, the correction from 1709.36 to 1627.47 would have to be a single 5 wave sequence. This is what I had originally counted, but it technically looks like 3 sequences, 1639.43-1669.51-1627.47. If this is the case, the second scenario presented becomes much more probable.

Assuming there were three waves from 1709.36, the next two moves, to 1729.86 and 1646.27, then complete an inverted corrective wave 2. The move from 1646.27 to 1774.54 was extremely complex, and I have had several different working counts. The best one actually has this as a single sequence, and would then be wave 3. The pullback to 1746.20 then completed wave 4, meaning wave 5 is underway. Given the structure so far, this would project to above 1828.

If this count is correct, the SPX needs only to complete a 5 wave sequence from 1746.20 above 1828 to complete the entire sequence from 1074.77. Looking at this wave, I have wave 1 completing at 1773.44. The three waves down are then most likely waves A, B, and C of an inverted corrective wave 2. Wave D of this sequence appears to have completed Friday at 1798.19. If so, the SPX should now see a pullback, and then a final move to above 1828. Support would be at 1794, and then 1784.

In the next day or two, I would be looking for a pullback to 1794 or 1784. 1784 would fit better with the inverted corrective wave, so that seems more likely. If the SPX then forges ahead and moves above 1828, the sequence from 1074.77 may be complete. It should be an interesting week.