Tuesday's Market 02/18/2014

The SPX opened slightly to the upside this morning, chopping its way higher to nudge above Friday’s high.  After hitting 1842.42 the index reversed direction and dropped to 1835.01. From there the SPX moved higher once more until reaching 1842.87. Trading then became choppy as the index moved between that high and 1839.33.

As some of you may know, I have been counting last month’s 1850.84 high as the completion of a 5 wave sequence from the October 2011 1074.77 low. I had been expecting a drop to 1679 before the next move higher. The SPX fell short of that mark, and so I have been reviewing my charts to try to understand why. During that review I noticed something interesting when looking at the chart from the 1560.33 low. The recent 1737.92 low may actually have completed an inverted corrective wave; a wave that I thought had ended at 1646.47. From 1709.36 the SPX has completed 5 well defined waves, 1627.47-1729.86-1646.47-1850.84-1737.92, which forms a 5 wave sequence.  And so it appears I was premature in calling 1850.84 the end of a sequence. Re-evaluating the entire structure from 1560.33 it appears that the SPX completed Wave 1 at 1709.36, which was followed by an inverted corrective Wave 2 that completed at 1737.92. This would mean that the index would need to complete Waves 3, 4 and 5 to complete the sequence from 1560.33.

Looking at the structure from the Wave 2 low, or 1737.92, there is a strong possibility that Wave 3 completed at 1798.03, Wave 4 at 1791.83, with the SPX in the range to complete Wave 5. This wave could have completed at 1842.87. It is also possible that 1842.87 is only the end of Wave 3. If that is the case the index should pull back at this point, and then make one more move higher.

Since this market has been notorious for finding a way to continue moving higher, I will remain cautious with this count until I see some price action confirming it. But it seems that a pullback of some sort is a strong possibility. I will work on some targets for both scenarios in the coming days.

Thursday's Market 02/13/2014

The markets headed lower this morning, with the SPX gapping down, and dropping almost immediately to 1809.22. The negative bias did not last long, as the index quickly reversed, and closed the opening gap by mid-morning. Just before noon the SPX hit 1824.65, where it paused momentarily, and pulled back to 1821.75. Once again the selling soon dried up, and the index continued higher, moving ahead to 1830.25 by mid-afternoon. Another pullback to 1827.29 followed, and then the SPX chopped higher into the close, reaching 1830.15.

Looking at the count once again from Monday’s 1791.83 low, I have made a slight change since yesterday. I had originally been looking at the initial move from 1791.83 to 1799.94 as a single wave. I am now counting this as three waves. This fits the rest of the sub-wave structure better, and shifts the Wave 1 high from 1826.55 to 1822.27. The move from that high to today’s 1809.22 low can then be counted as a 5 wave sequence. This turned out to be the first wave a very complex inverted wave structure. 5 waves can be counted from the 1822.27 high to the 1821.75 low which occurred shortly after noon today. This would be Wave A of the inverted wave, with Wave B carrying the SPX to 1830.25. I have been mentioning 1831 as the upper boundary of my current count from 1850.84. This level held, as the index dropped back, completing Waves C. D, and E, and Wave 2 at 1827.29. The choppiness into the close carried the index once again to just below the 1831 level, and completed Waves 3, 4, and 5 from 1791.83 at 1830.15.

If my current count is to remain intact, the SPX will need to stay below 1831. From the 1850.84 high I have 1835.23 as Wave 1. Wave 2 is being counted as an inverted corrective wave which looks to have completed today as 1849.31-1739.66-1798.03-1791.83-1830.15. My downside target remains at 1679.

Wednesday's Market 02/12/2014

The SPX opened higher once again this morning, reaching the high of the day early on at 1826.55. This week long rally has been pretty impressive, with the SPX rising from 1737.92 to 1826.55, that would be 89 points for you Fibonacci fans, with but one lone 11 point pullback being the only blemish on a nearly vertical move. Although impressive, this rally can also be viewed as a classic short covering rally. As the index neared, and the fell from, the 1850, many people, including myself, started calling for a correction. The depth of the correction varied by analyst, but most were looking for some sort of pullback. This view was reinforced as the SPX continued to decline, eventually falling below 1740. This marked the largest decline since the May-June 2013 move from 1687.18 to 1560.33. With ample warning it is likely that many people had shorted, or at the least moved to a neutral position. Once the index started moving higher, traders could not get back in fast enough, leading to this impressive rally. The question now is whether there are enough buyers left to push the markets higher, or has this sharp rise only solidified the buy the dip mentality. Perhaps this will lead to continued complacency if the markets start to move lower once more.

That, unfortunately, is a question that can only be answered in time. My view continues to be that the SPX will move lower, with a target of 1679. But getting back to the market, I will start with the move from Monday’s 1791.83 low. The move from that low to Monday’s high of 1799.94 looks to be a Wave 1. The index then pulled back to 1797.31 into the close, and then started off Tuesday morning by rising to 1806.45. I see these as Waves 2, and 3. Wave 4 would turn out to be an inverted corrective wave, which topped yesterday at 1823.54, and then completed near yesterday’s close at 1818.38. Wave 5 then completed this morning at 1826.55. From there, the SPX pulled back to 1815.97 in a 5 wave sequence, and then bounced back to 1822.27 in three waves, before pulling back into the close.

My current count then has Wave 1 from 1850.84 completing at 1835.23, with the entire action from that point being an inverted corrective wave completing as 1849.31-1737.92-1798.03-1791.83-1826.55. This move could move slightly higher, but 1831 is the upper boundary for this count, and any move above that would greatly increase the likelihood that a complete sequence completed at the 1737.92 low, with the SPX now on its way to new highs. I will address that scenario if 1831 is surpassed. Until then I will continue to look at 1679 as the next target.