Monday's Market 02/03/2014

On Friday I posted that I was looking for the SPX to move higher, to 1800, before the next leg of this ongoing decline got under way. That did not happen, as the index rose slightly at the open, and then went into free fall throughout the remainder of the day. This means that my short term count was incorrect, but actually increased the probability that the medium term count is correct.

I have modified my count beginning with Wednesday’s 1770.45 low. That low would be Wave B of 2 from the 1850.84 high. That would make the rally on Thursday to 1798.77 Wave C of 2 from that high. From that point the SPX dipped, and then recovered slightly into the close.  I now count that as a Wave 1, followed by a Wave A of an inverted corrective Wave 2. Wave B then was the steep drop on Friday morning, and was followed by Waves C, D, and E into the afternoon, which completed the Wave 2 inverted corrective wave. The SPX then dropped again, in three waves, into Friday’s close. This can then be counted as Waves 3, 4, and 5 from Thursday’s Wave C high of 1798.77. This 5 wave sequence appears to have been only the first wave of a larger degree sequence from that high. The small rise this morning completed Wave A of an inverted corrective Wave 2. This wave would eventually carry the index down to 1751 with Wave D, and completed at 1757. It then looks like Waves 3, 4, and 5 completed into the close. With a 5 Wave sequence now completed from the Wave C high, it is likely that Wave D completed today at 1739.66.

While my short term counts have been suspect, the major points I outlined last Tuesday have remained intact. I had a possible scenario as 1800-1801, a drop to 1744 followed by a bounce, and then a final move lower to 1679. On Thursday the SPX hit 1798.77, and was followed by a decline to 1739.66. I would now expect a rally to complete Wave E, and Wave 2 from 1750.84. I am looking for a minimum of 1762, with an ideal target of 1773 for this rally. From there I am still looking for a further decline to 1679.

Friday's Market 01/31/2014

The recent increased volatility continued into today’s trading session, which featured extended moves both to the downside, and to the upside, but in the end left the SPX below Thursday’s close. The session began with the index suffering a steep decline, falling to 1772.26, which was just slightly higher than the recent low and more than twenty points lower than the previous close. From there the SPX staged a remarkable comeback, closing the opening gap, and nearly moving into positive territory for the day. After that the SPX relinquished some of that comeback, falling back to 1781 near the close.

I am counting today’s opening decline as Wave D of the inverted corrective Wave 2 from 1835.23. The rally to 1793.88 that followed appears to be three waves. A Wave 1 completed at 1779.40, and was followed by a decline to 1774.03, which I am counting as Wave A of an inverted corrective wave. Wave B then carried the SPX to the day’s high of 1793.88. The decline that followed can be counted as Waves C, D, and E, and thus Wave 2.

If this interpretation is correct the SPX should move higher from this point. I am looking for the index to complete Waves 3, 4, and 5 as 1792-1795-1800. This should complete Wave E of the inverted corrective wave from 1835.23. After that I would look for the recent decline to continue, with 1752 being the next target. I still see this decline eventually moving to 1679.

I will try to discuss this in more detail over the weekend, but once again, I am looking for a move to 1800, followed by a decline to around 1752.

Thursday's Market 01/30/2014

FOMC statements often provide the catalyst for market volatility, and Wednesday was no exception. Following Tuesday’s decidedly positive tone, the SPX gapped down to open Wednesday’s trading session, plunging to 1775 within the first ten minutes of trading. I had been looking for a modest continuation of Tuesday’s rally to the 1800 level, but the market had other ideas. The SPX rallied back to 1787 by late morning, and then drifted lower as it awaited the Fed statement.

Once that statement was released, the real fireworks started. The SPX first spiked higher to 1784, but quickly reversed to fall to 1777. Another rise to 1782 was followed by a second drop, this time to 1774. From there the index recovered to 1779 before a final drop to 1770.45. A more extended move higher followed, as the SPX moved back to pre-statement levels at 1782.92, and then re-tested the day’s low by dropping to 1770.98, just above that low. The index then moved slightly higher into the close.

The market action from Tuesday’s 1793.87 high to yesterday’s 1770.45 low appears to have completed a 5 wave sequence from 1849.31, and Wave B of 2 from the 1850.84 high.

Today started with a sharp rally, with the SPX gapping up to 1790.31 at the open. After a pullback to 1784, the rally continued. The SPX would reach 1798.77 before the next meaningful pullback. This brought the index back to 1792.09 before the SPX rallied again, this time to 1797.68, before slumping into the close.

Looking at the count from yesterday’s 1770.45 low, the SPX completed Wave 1 at 1782.92. The pullback to 1770.98 was then Wave A of 2. This inverted corrective Wave 2 took the index to the day’s high of 1798.77, and then completed at 1792.09. It would appear that Waves 3, 4, and 5 from 1770.45 then completed at 1795.93-1794.18-1797.68.

This should complete Wave C of 2 from 1850.84. Support is now at 1790, and then 1781. The SPX could pull back to one of those support areas to complete Wave D, and then complete Wave E, and Wave 2 somewhere above 1800. The more bearish scenario is that the SPX falls below 1770 before completing Wave D of 2, and then after another short-lived rally continue lower. My downside target remains at 1679.