Thursday's Market 10/16/2014

The SPX opened lower again this morning. After falling to 1835.02, the index began to rally. It rose in choppy fashion to 1876.01 before falling back into the close.

The SPX, although opening lower, managed to hold above the 1820.66 low. From that point the index looks to have completed a 5 wave sequence higher at 1876.01. The index looks to again be at a critical point. With a 5 wave sequence today 1876.01, there is a danger of the SPX again rolling over and continuing its slide. If this should happen there looks to be support at around 1819. At this point I am still looking at 1820.66 as a longer term low. My current count would have the SPX moving higher, with 1880 as a likely resistance level. If the index moves up to that level 1865 would become support.

Wednesday's Market 10/15/2014

It was a brutal day for the SPX, with the index plunging at the open to 1837.22. After a brief attempt at a rally that brought the SPX back to 1866.64, the index dropped once again, this time reaching a low of 1820.66.

I will be the first to admit that I have not tracked this decline very well, so I will proceed cautiously. The two scenarios I outlined for the longer term outlook yesterday remain intact. Short term, the SPX still looks to have completed a 5 wave sequence from 2019.26 last Friday at 1912.84. The quick choppy action from that point has been the problem for me. After today’s action it looks like the SPX completed an inverted corrective wave as 1935.56-1890.90-1912.02-1874.14-1898.71. So from 2019.26 the index could have completed Wave A at 1912.84 and Wave B at 1898.71. The first drop today may have been Wave C, the bounce to 1866.64 Wave D, and the final drop to 1820.66 as Wave E. This is supported to an extent by virtue of the SPX finally making a higher short term high by moving above the 1866.64 Wave D this afternoon. The move off the 1820.66 low also looks to be an incomplete wave, suggesting further upside is possible.

The short term wave structure suggests a move higher to the 1888 level, with some indications that if this does occur, it should happen early in the trading day. After that a pullback to 1847 seems likely. Obviously if the SPX drops below the 1820.66 low this scenario would be invalidated. Support is possible below 1810, but the next major support would likely be the 1748 level.

Tuesday's Market 10/14/2014

Last Friday the SPX fell to 1912.84 and completed a 5 wave sequence from the 2019.26 high. I thought there was a good chance that the index would rally from that point, but that turned out to be only the first wave of a higher degree sequence from that high. The SPX appears to have completed that sequence today at 1871.79. The first step in confirming this as a low would be a move above the previous short term high of 1898.71 hit earlier in the day.

I have been looking for this decline to complete in one of three ways. One of those scenarios was made highly unlikely with the drop below 1881, so I will briefly outline the other two. Looking at the weekly chart I have identified 5 waves as having completed from the 666.79 low. The initial move to 1219.80 is counted as Wave 1 in both scenarios. My current count has the next waves as 2 and 3 at 1010.91 and 1370.58. The following decline is labeled as Wave A of an ongoing corrective Wave 4. Wave B then completed at 2019.26, putting the SPX currently in Wave C of 4. Given the current wave structure, Wave 5, when it unfolds, is likely to be quite short. Consequently the decline preceding Wave 5 also needs to be shallow. To accomplish this, the current Wave c of 4 needs to be shorter than Wave A, which was around 295 points, and Wave E of 4 will need to be shorter still. This obviously still leaves some room to the downside, but with the SPX completing a sequence, and the need for a shallow Wave E, it is possible that this is the end of Wave C. Wave D should then carry the SPX to new highs, and be followed by a Wave E decline to complete Wave 4. One more move to new highs would then complete the sequence from 666.79. An EW equivalent count would be I-II-1-2-3-4-III-IV-V, with the SPX currently in Wave 4. This is the same wave structure as the wave from 1074.77 to 2019.26.

The second scenario is much more bearish in the near term, but may turn out to be more bullish in the longer term. Again Wave 1 can be seen as the move from 666.79 to 1219.80. The entire move from that point can be counted as an ongoing inverted corrective Wave 2 with Wave A completing at 1010.91, Wave B at 1370.58, Wave C at 1074.77, and Wave D at 2019.26. The SPX would then be currently in Wave E of 2. The minimum target for this wave would be 1748, but would likely carry lower than that. This would then need to be followed by Waves 3, 4, and 5. I had discounted this scenario for some time, as until recently the need for this wave to exceed the 295 point decline of Wave C would have taken the index below the 1370.58 high, which seemed unlikely. The SPX however has now reached a level where that magnitude of decline is plausible.