Tuesday's Market 03/04/2014

The SPX opened substantially higher today, moving up to 1867, and then after a small pullback continued higher to 1871.44. From there the index made two slightly higher highs at 1873.27 and 1873.60, separated only by very minor pullbacks. The SPX then pulled back all of five points before moving to a new high at 1876.23.

While there are still several counts that are possible, it is looking more and more like the SPX is in Wave 3 of 5 from the 1560.33 low. Wave 5 began at the 1737.92 low, with Wave 1 completing at 1858.71, and possibly Wave 2 yesterday at 1834.44. Yesterday I counted a 5 wave sequence to 1846.98, which was followed by a semi-inverted corrective second wave which completed at 1840.43. This looks like Wave A of an inverted corrective wave. The higher open today and the formation of the three successive highs completed a sequence for Wave B. Wave C was the 5 point pullback that followed, and Wave D the final high of the day. Wave E should finish somewhere between the closing price and 1869. A move slightly lower, bringing the RSI(5) on the 5 minute chart to oversold levels would fit perfectly. The SPX should then move higher, completing Waves 3, 4, and 5 to the upside. This should complete Wave 3 from the 1737.92 low. I would look for this wave to complete above 1909.

The count from the 1560.33 low requires the wave sequence from 1737.92 to complete above 1957. In order for that to happen Wave 3 must complete above 1909. These are not targets, simply minimum requirements. The ideal target for this wave remains 2001. If this wave completes beneath 1909, it would indicate that something else is happening.

A move below 1868 would put the short term count in doubt, but not the longer term count. For the longer term count to be invalidated, the SPX would need to move below 1834.  

Monday's Market 03/03/2014

The SPX suffered a gap down opening today, dropping to 1844 at the open. After a small bounce the index moved lower still, stopping right at the important 1842 support level. That support only held momentarily, as the SPX continued to lose ground, this time hitting the low of the day at 1834.44. An attempted recovery followed, taking the index first to 1846.98, and then 1848.54 before pulling back to 1840.43. From there the SPX moved slightly higher into the close.

Over the last several days I have described a few different paths that this market may take. Looking at the SPX from the 1737.92 low, I see a 5 wave sequence completed at 1858.71, followed by a pull back to 1840.19. After that the index formed another 5 wave sequence to Friday’s 1867.92 high. Friday afternoon the index completed a wave at 1847.67, and then rose to 1860.68. That rise looks to be Wave A on an inverted corrective wave that completed this morning at 1847.40, and was then followed by a completed wave at the low of 1834.44. So from the 1858.71 high the market has completed 5 waves as 1840.19-1867.92-1847.67-1847.40-1834.44. This satisfies my model for a semi-inverted corrective wave from the 1858.71 high.

The SPX has formed quite a few of these semi-inverted corrective waves lately. Although normally rare, these seem to form in periods of indecision, which is exactly what we have seen lately.  Assuming those is an inverted corrective wave, the scenario showing 1867.92 as a completed 5 wave sequence from the 1646.47 low can now be discounted. It still appears that there are two options in play. The first has 1858.71 as Wave 1 of 5 from 1560.33. This would be the more bullish of the two scenarios. The second option has the move from 1737.92 as Wave D of an ongoing inverted corrective wave from 1709.36. Again, the index would be in Wave 2, but would most likely complete lower than the first scenario.

Shorter term, with a semi-inverted corrective wave completed, I would expect the SPX to move higher, but there may be limited upside, with resistance at 1865 and then 1875. It is also possible, as happened with last week with the same type of wave, but at a lesser degree, that this is only the first wave of a larger corrective formation. Support remains at 1819.

Sunday 03/02/2014

On Friday I presented two scenarios for the SPX. The first involved the index moving back up to 1867-1870 to complete a 5 wave sequence from the 1737.92 low. The other had the SPX dropping to 1842 to complete an inverted corrective wave from the 1858.71 high. The first scenario would be followed by a pullback; the second would point to higher prices ahead.

Over the weekend I have noticed a third possibility. This one looks at the SPX from what I have labeled as Wave 2 at 1646.47. From that point the index completed a 5 wave sequence at 1850.84. A pullback to 1737.92 followed, also a 5 wave sequence. A third sequence completed at 1858.71. After dropping to 1840.19 the SPX completed another sequence at 1867.92, which I discussed this week. I had been looking at the move from 1737.92 as the start of a new wave, of which the move to 1850.84 was only the first wave. It is possible that the move from 1646.47 to 1867.92 is all part of wave 2. The sequence 1850.84-1737.92-1858.71-1840.19-1867.92 satisfies my model, and thus could mark the end of Wave 3. If this is the case, the targets for the next pullback would be 1819 and then 1749.

I would still be looking at 1867-1870 and 1842 as important areas of support/resistance. As I mentioned on Friday, the target range in both cases is very narrow. If the SPX breaks above 1867-1870, it would indicate that the index could move substantially higher. If the SPX moves below the previous 1840.19 low, I would think that the scenario that I laid out is in play.