Tuesday's Market 02/25/2014

The last two days have been interesting in terms of wave structure. From Monday’s 1858.71 high, the SPX dropped to 1854.69. After an inverted corrective Wave 2, the index opened lower this morning to complete Wave 3 at 1847.66. After a small bounce to 1849.94 for Wave 4, Wave 5 completed at 1843.49. The SPX was not finished moving to the downside however, as the index want on to complete a larger degree wave as 1843.49-1845.34-1840.79-1842.42-1840.19. Waves of this structure often reverse sharply after moving beyond Wave 4, which in this case was 1842.42. This was no exception, as the SPX climbed to 1847.60 once clearing that level.

After pulling back to 1843.56 the SPX continued higher, this time reaching 1852.91. The index then went into an extended pullback throughout the remainder of the day. The SPX first formed a 5 wave sequence that completed at 1845.24, and then formed an inverted corrective wave then terminated at 1845.15. From there, the index made another small move lower to 1842.43.

Looking at the wave formation from the 1840.19, the SPX formed three waves to the upside, 1847.60-1843.56-1852.91. With the subsequent move below the second wave low of 1843.56, the move from 1852.91 to 1842.43, this could be interpreted as the beginning of an inverted corrective wave, which would indicate lower prices to come. But taking into consideration the fact that the 5 wave sequence lower from 1852.91, and the inverted corrective wave that followed both completed between 1847.60 and 1843.56, the first two waves from the 1840.19 low, it opened the door to another interpretation, namely the formation of a semi-inverted corrective wave. When the small drop from 1845.15 to 1842.43 completed within my model’s parameters, this was confirmed.

Generally these formations are followed by a very sharp move in the direction of Wave 1, which in this case is up. If this interpretation is correct, I would expect the SPX to move slightly above 1855, undergo a shallow pullback, and then continue higher.

If the SPX moves below 1842.43, this interpretation is wrong, and the index should move to new short term lows. A move above 1858.71 would confirm this scenario.

Monday's Market 02/24/2014

The SPX opened higher today, hit 1845.50, had an ever so slight pullback, and then continued higher to 1851.55. From there the index pulled back to 1849.24, and then rose steadily until it reached 1858.71. After that the SPX dropped to 1856, bounced slightly, and then gained momentum to the downside into the close.

Picking up the count from the weekend, I will make one small change to the short term count from 1824.58. As I discussed over the weekend, a 5 wave sequence completed at 1842.79. The change would be the move from there to 1846.13. It now appears that from 1842.79, the index formed an inverted corrective wave, and then completed a higher degree sequence at 1846.13. That high would be Wave 3 from 1737.92. Wave 4 then completed near Friday’s close at 1835.60. The move today can then be counted as 5 waves from that low, 1845.50-1844.09-1851.55-1852.15-1858.71. This would appear to be the 5^th wave from the 1737.92 low.

Assuming a 5 wave sequence from 1737.92 has completed, this could either be Wave 1 of 5 from 1560.33, or Wave E of an inverted corrective Wave 2 from 1560.33. In the first case I would expect support at 1815, and then 1775. In the second case, I would be looking at a target of 1743. To confirm one of these two scenarios is in play, I would like to see the SPX fall below 1835.60.

A rise above 1858.71 at this point would mean either that Wave 1 is still ongoing, or that Wave 2 has completed. If Wave 1 is still underway, it is possible that the index has just completed the fourth wave from 1824.58, or the Wave 2 low. 1846.13 would then be Wave 1 of 3, with either waves 2, 3, and 4 completed into today’s low, or an inverted corrective wave under formation. With the similarity in the pullbacks from 1846.13 to 1835.60 and 1858.71 to 1847.96, this is a possibility. On a move above 1858.71, 1873 would be the next resistance.

Weekend Outlook 02/23/2014

I apologize for the absence of posts late last week. The past few years seem to have been marked by one medical situation after another. As soon as one abates, another arises; this time in the form of a fractured wrist suffered by my wife, a result of an over abundance of ice around here lately. So in addition to my real job, I will be pulling double duty around the house for the next several weeks.

I have recently been trying to heed some unintended advice from someone whose opinion I have come to respect over the last few years, and someone I had come to regard as a friend. I fear I have damaged that relationship to some extent with some ill-chosen words, but still respect his opinion. This advice has to do with not seeing the forest for the trees, and conversely sometimes missing the trees for the forest. I have been told I tend to over complicate things, and in some respects that is true. Lately I seem to have been caught somewhere between the trees and the forest, so I have been trying to keep both of those in mind in my analysis. But I am sure no one comes here to hear about me, so I will leave it at that, and offer that analysis.

I will start with the trees, in particular the short term count from the recent 1847.50 high, and work my way out to the forest.  From 1847.50, I count 5 waves down, 1843.26-1845.05-1834.05-1841.71-1824.58. The SPX then completed three waves to the upside, 1842.79-1839.25-1846.13.

If one then widens one’s view to the 15 minute chart, one can see how this completes a 5 wave sequence from the 1737.92 low. From this low, the index completed the first wave at 1798.03, and then Wave A of an inverted corrective wave at 1791.83. Wave B then completed at 1822.27 and Wave C at 1809.22. Notice that the end of Wave B, 1822.27, completed below the high of the wave which was 1826.55. This was due to Wave D of an inverted corrective wave completing at 1826.55, and then Waves 3, 4, and 5 completing beneath that high. Wave D of 2 from 1737.92 followed, completing at 1847.50. The 5 wave sequence that followed, the sequence I started with was then Wave E, and completed the inverted corrective Wave2. The three waves I described from that point then completed Waves 3, 4, and 5, and a complete sequence from the 1737.92 low. Just as was seen in Wave B of this sequence, this sequence completed below the actual high of the sequence, which was 1847.50.

With a sequence seemingly completed from the 1737.92 low, one can once again widen the view, this time to the 4 Hour chart. This time frame tracks the sequence from the 1560.33 low. Wave 1 of this sequence completed at 1709.36. After more review, I have reverted to my original count for the next wave, going back to the 1639.43-1669.51-1627.47-1729.86-1646.47 inverted wave. This still seems to be the most appropriate count, and for now I will call this Wave 2 from the 1560.33 low. Assuming that count, I would next say that the move from 1646.47 to 1850.84 completed in 5 waves, and would become Wave 3. This wave gave me quite a bit of trouble during its formation. I counted the first three waves, 1711.57-1695.93-1759.33, and was looking for the completion of waves 4 and 5, but the SPX became somewhat choppy at that point and quite complicated to follow. After much consternation it now appears that Wave 4 was a very complex double inverted corrective wave, which also included a semi-inverted corrective wave. This will also play a part in an alternate count I will discuss shortly. The first inverted corrective wave completed between 1759.33 and 1746.20. This then became Wave A of a larger inverted corrective wave. Wave B carried the index to 1849.44, and had a semi inverted second wave. Waves C, D, and E, and Wave 4 from 1646.47 then finally completed at 1815.52. A final move higher to 1850.84 completed the sequence and Wave 3 from 1560.33 in this scenario. The drop to 1737.92 that followed would be Wave 4, with Wave 5 underway. Under this scenario the recently completed sequence at 1846.13 would be Wave 1 of 5. This would be a very bullish scenario, and would have an ideal target of SPX 2001.

In this scenario I would be looking for a small pullback, to be followed by a resumption of the move higher. Short term support would be at 1826, and then 1793. At this point, any move above 1846.13 would solidify this scenario.

The alternate scenario I alluded to has Wave 1 completing at 1709.36, followed by the inverted corrective wave that completes at 1646.47. However, in this scenario, this inverted corrective wave is Wave A of a larger inverted corrective wave, similar to the Wave 4 I described previously. The move to 1850.84 would then be Wave B, 1737.92 Wave C, and 1846.13 Wave D. That would put the SPX in Wave E of 2 from the 1560.33 low. In this scenario I would expect the SPX to move lower, to near the 1737.92 low to complete this wave. The actual target at this point would be 1733. From there the index should continue higher, but I like this to complete back near the 1850 level.

At the moment I prefer this scenario, but it hinges on the SPX remaining below 1846.13. Short term support is at 1826 and then 1793, while resistance is at 1844-1845.