Tuesday's Market 02/04/2014

In the wake of yesterday’s market rout, I was expecting a move higher today, and that move started from the opening bell. After quickly running up over nine points at the open, the SPX then settled into a slightly upwardly biased choppy range for the next two hours. The index pulled back to 1745, and then rallied again to 1754. Another pullback took the SPX to 1748, at which point it rallied once more to 1753, and was followed by another pullback to 1748. A more prolonged rally took the SPX to the high of the day at 1758.73 by early afternoon. The choppiness then returned, as the index bounced between 1750 and 1757 into the close.

From yesterday’s 1739.66 low, it looks like a Wave 1 higher occurred at 1752.19, and was followed by an inverted corrective Wave 2 that completed at 1747.84. A five wave sequence then looks to have completed at 1758.73 which may be a Wave 3, with a 5 wave sequence lower then completing at 1749.58.

I have been looking for a move from the 1739.66 low to a minimum of 1762, with an ideal target of 1773. This would complete an inverted corrective wave, and would be followed by another move lower to 1679. That remains my preferred count, but some red flags were raised today. First, the SPX failed to reach the 1762 threshold. Second, given the four waves completed from the low, Wave 5 would project to complete below 1762. While this could simply mean that this bounce will continue a bit longer, it could also suggest that there is something else going on. An alternate count puts the SPX still in Wave D of 2 from the 1850.84 high, which means the next leg down could start from this point.

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.