Thursday's Market 05/01/2014

For some time now I have been tracking a 5 wave sequence from the June 24^th low of 1560.33 on the SPX. I have been looking for the end of this sequence to complete a larger 5 wave sequence from the October 4^th 2011 low of 1074.77. The sequence from 1560.33 began with Wave 1 to 1709.36, and was followed by an inverted corrective Wave 2 which completed at 1646.47. After that the SPX completed a 5 wave sequence higher to 1850.84, which I had originally counted as Wave 3 from 1560.33. This was followed by a sequence lower to 1737.92. Another sequence completed to the upside at 1882.35. From this point the SPX became quite choppy, and by my count 3 waves into the 1814.36 low as 1837.49-1872.53-1814.36. These 5 waves from the 1850.84 high, 1737.92-1882.35-1837.49-1872.53-1814.36, count as an inverted corrective wave. Since Wave 2 from 1560.33 was an inverted corrective wave and normally only one corrective wave in a sequence is complex as Wave 2 was, it is best to count 1850.84 as Wave 1 of 3 from 1560.33, and the subsequent inverted corrective wave as Wave 2 of 3.

This count suggests that the SPX should form 3 waves higher from 1814.36 to complete Wave 3 from 1560.33. This would then be followed by a corrective Wave 4, and then one final move higher to complete the sequence from 1560.33, and also a sequence from 1074.77. Looking at the relationship between Wave 1, and Wave 3 so far, Wave 5 would be expected to be longer than Wave 3, indicating that the SPX would move much higher than current levels.

So again, I am looking for 3 waves higher from 1814.36 to complete this Wave 3. Looking at the action from that low, 3 waves can be counted as 1884.89-1850.61-1888.59, which was today’s high. The count of 1850.84-1814.36-1884.89-1850.61-1888.59 satisfies the parameters for a completed sequence from 1814.36. A move below 1850.61 would most likely confirm this count, and signal the end of Wave 3 from 1560.33. It is also possible at the moment that the 1884.89-1850.61-1888.59 move is only the first 3 waves of Wave 3 of 3 of 5. A move above 1888.59, without violating the 1850.61 low, would increase the likelihood of this scenario.

As I mentioned above, this would require one more move higher for the SPX, a move that should exceed the 242 point length of Wave 3. I am still not completely sold on the idea of another 250 +/- move on the SPX, and there is another count that suggests that today may have marked the completion of a larger degree wave. This count would indicate that the SPX may be near, or may even have completed, the sequence from 1074.77.

This is a count I spoke of back in October (http://5wavemodel.blogspot.com/2013/10/mondays-market-10142013.html). Whereas the count above counts the first three waves from 1074.77 as Wave 1(1292.66), Wave 2(1158.66), Wave 3(1422.38), followed by an inverted corrective Wave 4 which completed at 1560.33, this alternate count is slightly different. This has 1292.66 as Wave 1, 1158.66 as Wave A of 2, and 1422.38 as Wave 1 of B of 2. The next 5 waves are the same in each case, with 1266.74-1474.51-1343.35-1687.18-1560.33 completing an inverted corrective wave, only of differing degrees. In this alternate count, this is Wave 2 of B of 2. Waves 3, 4, and 5 completed as 1709.67-1627.47-1729.86, and completed Wave B of 2. 1646.47-1850.84-1814.36 then completed Waves C, D, and E, and Wave 2 from 1074.77. Just as in the first scenario the SPX now needs to complete 3 waves higher from 1814.36, but this time those three waves will complete a sequence from 1074.77.

The three waves I outlined in the first example, 1884.89-1850.61-1888.59, also satisfy the parameters for the completion of this wave. The same caveats apply to this scenario as they do in the first.

The only difference between these two scenarios is the move from 1709.36 to 1627.47 following the initial rise from 1560.33. I had originally counted this as a single 5 wave sequence, and later changed it to three separate waves, 1639.43-1669.51-1627.47. This move was quite choppy, which made it difficult to track with complete certainty. If my original count was correct, and it was a single move, the alternate scenario of this being the completion of the wave from 1074.77 is the most probable. If it is three waves, the first scenario is the most probable. In either case, I would expect a move lower to begin soon, with the main difference being the degree of that move lower. 

Thursday's Market 04/10/2014

The SPX started slightly to the downside, dropping to 1868.46 before rallying to 1872.53. This was just above yesterday’s 1872.43 high, and completed a 5 wave sequence from 1837.49. It was not surprising that the sequence completed just above yesterday’s high considering the extent of yesterday’s run-up, and the extreme overbought conditions it created. A pullback at some point was expected, however the extent and speed of it was. Once the sell-off started, it continued nearly unabated to 1840.03. From there the first semblance of a rally appeared, and the index moved up to 1847.55. Another wave of selling took the SPX down to 1830.87 before another rally moved the index to 1839.12. The SPX then sold off into the close, dropping to 1833.42.

When the SPX fell to 1837.49 last Tuesday, it appeared the correction from 1882.35 was finally over.  While that may still be the case, today’s action keeps open a couple of scenarios that seemed to have been relegated to back up status.

I will try to take this one step at a time, so I will start from the current move from today’s 1872.53 high. The SPX completed a 5 wave sequence to the downside at 1840.03. From there the index rallied just less than 8 points, fell to 1830.87, and then staged a rally of just over 8 points. If the SPX opens lower, it would complete a 5 wave sequence at 1828. If the index opens to the upside, it would complete an inverted corrective wave at 1841. This sets up my first support, and resistance levels. The first scenario could mean an end to the current decline; the second would indicate further downside ahead.

Moving out to my current view that the SPX is currently in a wave 5 from the June 1560.33 low, Wave 1 of 5 would have completed at 1882.35. It is now apparent that the sequence to 1837.49 was not the end of the decline from 1882.35, but could be the beginning of an inverted corrective wave with the decline to 1837.49 as a wave A, the rally to 1872.53 a wave B, with wave C currently underway. Support for this scenario would be 1827, and then 1803. This scenario would result in higher prices, with the minimum target being 1957 as I have mentioned.

The second possibility is that the SPX is still in an inverted corrective wave from 1709.36. This has been my alternate scenario, and would target 1758.

Wednesday's Market 04/09/2014

The rally off yesterday morning’s 1837.49 low continued today, giving credence to the idea of that being an important low. Looking at the move from that low, the SPX completed a wave 1 at 1850.46. That was followed by an inverted corrective wave to 1847.67. This correction took the shape of what is more commonly known as an expanding triangle. From that point the SPX formed 5 waves up to 1858.38, which was followed by a pullback to 1852.38. Another 5 wave sequence to the upside took the index to 1869.86, and was again followed by a small pullback, this time to 1866.33. This looks to complete a more complex inverted corrective wave from the 1850.46 wave 1 high, which completed as 1847.67-1858.38-1852.38-1869.86-1866.33.

This set-up indicates that there is further upside to this move. I continue to count this as Wave 5 from the June 2013 1560.33 low. The 1837.49 low yesterday would mark the completion of Wave 2 of 5 from that point, with a minimum target for Wave 3 of 1909. Once this sequence from 1560.33 completes, it should also complete a sequence from the October 2011 1074.77 low. The minimum target for the completion of this wave is 1957, with an optimal target of 2001.