Monday's Market 03/17/2014

The SPX opened higher this morning, bouncing sharply off Friday’s 1839.57 low, and reaching the high of the day of 1862.30 within the first hour of trading. I had mentioned 1861 as a level that might determine whether this bounce would be just that, a bounce, or the start of a move to new highs. I had thought that this would be a small correction that would lead to the next move down, but with the index moving above 1861 the odds now favor the start of a new move higher.

The simplest count for today’s SPX action is a Wave 1 to 1862.30, followed by an inverted corrective wave as 1854.61-1857.96-1853.17-1861.15-1856.31. This is supported by the oversold readings on the RSI(5) for Waves A, C, and E. I would have expected the MACD(13,34) to cross the zero line at Wave E, but it fell just short of that level. This may indicate that this is only the start of a more complex corrective wave, but at the moment this would qualify as a Wave 2.

I am still not completely convinced that the SPX is headed to new highs. There are still several possibilities that would result in the index moving lower, so I will remain cautious at the moment. I would first like to see a move above 1874.40. This was the start of Wave D of the inverted corrective wave I was looking for, and until that level is surpassed it is still possible that the SPX is still in Wave D. The 60 Minute MACD(13,34) might be a good indicator to watch for now. A negative crossover just above the zero line before the SPX gets above 1874.40 could be a bearish signal.

Friday's Market 03/14/2014

Yesterday the SPX continued to move lower from the 1882.35 high. The first move from this high dropped the index to 1854.38, where it completed a 5 wave sequence. The SPX then rebounded in what I see as three waves, lifting the index to 1874.40. The initial drop yesterday to 1845.81 completed a five wave sequence from 1874.40. The SPX bounced to 1852.98 off that low before making a new low at 1841.86, and then moved slightly higher into the close.

This morning the SPX started off slightly lower before higher to 1852.44. This completed an inverted corrective wave from yesterday’s 1845.81 low. After hitting that high, the index moved slightly below yesterday’s low to 1840.36, bounced to 1851.64, and then made a final push lower to 1839.57, completing a sequence from Thursday’s 1874.40 high.

Looking at the entire move from the 1882.35 high, it appears that the SPX completed a Wave 1 at 1854.38. The three waves higher from that point to 1874.40 were the first three waves of an ongoing inverted corrective wave. With 5 waves now completed from 1874.40, there is a good chance that the fourth wave of that inverted correction, or Wave D, completed today at 1839.57. I would now expect the SPX to move higher to complete Wave E, and Wave 2 from 1882.35. From that point I would be expecting a resumption of this downturn.

If the SPX is indeed entering Wave E of 2 from 1882.35, there are several parameters that will define this wave. Since Wave A was greater than Wave C, Wave E can be expected to be greater than Wave A, which was slightly less than 14 points. Adding that to today’s low yields 1853.57, and gives the minimum price for this wave. The ideal price for this wave would be 1858. The maximum level for this wave is 1861. If the SPX moves above 1861 I would have to at least consider the possibility that 1839.57 marked the end of this move.

Thursday's Market 03/13/2014

Although it is still possible that the SPX is still correcting the wave from 1834.44, it is becoming much more likely that the index has completed a wave from 1737.92. If this turns out to be true, the SPX is likely in Wave E of an inverted corrective wave from the August 1709.36 high, which would have a target of 1758.

 When the SPX reached 1878.16 last Friday afternoon, it completed a sequence from the 1834.44 low. I have been looking at the action from that point as a corrective wave. The alternative is that the index made three waves down to 1867.04, and then three waves up as 1879.73-1872.73-1882.35. This would have completed an inverted corrective wave from the 1858.71 high as 1834.44-1878.16-1871.59-1877.86-1867.04, and in turn a 5 wave sequence from the 1737.92 low as 1858.71-1867.04-1879.73-1872.73-1882.35.

From that high, I see a complete sequence to 1854.38, followed by three waves up to 1874.40. This is likely part of an inverted corrective wave that has yet to complete. Today the index completed a sequence to 1845.81, and then rebounded to 1852.98, before completing another sequence down to 1841.86. With a sequence from 1882.35 not yet complete, this market should have further to go on the downside.

In the short term, resistance is at 1853, and then 1863. If the SPX gets much above 1863, this all may have been a corrective wave from 1878.16. Near term support is just below today’s low of 1841.86.