Friday's Market 08/30/2013

Following a virtually flat open, the SPX bounced slightly to 1640.08 before drifting lower through the morning hours of Friday’s trading session. BY mid-day the index had fallen to 1630.85 with only small bounces higher. At that point the SPX bounced again to 1634 before making another move lower to 1628.43. That’s when things got interesting. The index rose sharply to 1636, fell back to 1631, and then rose again to 1635.80. That move was short-lived, as the SPX fell again to a new intra-day low at 1628.05, before rising quickly in the last few minutes of trading to 1634.06.

Counting from Thursday’s 1646.30 high, the SPX completed a 5 wave sequence at 1633.91. This is denoted by the yellow “C?”. After a small bounce higher to 1636.42, the index then completed an extremely complex 5 wave sequence that terminated at 1628.05. This can be then counted as 3 waves down from the 1646.30 high. Looking at the 15 minute chart from the 1627.47 low, I have been counting the move to 1646 as 3 waves higher, 1641.18-1630.88-1646.41. I have mentioned in the past a complex corrective wave that I refer to as a semi-inverted corrective wave. This type of wave has very specific properties, but is difficult to identify during its formation. If the trend is higher, the first wave of this corrective wave is to the downside. The second wave is to the upside, and carries above the previous high. The third and fourth waves complete within the Wave 1 high and the Wave A low. The fifth wave finishes below the third, but above the origin of Wave 1.

Looking at the entire move from 1627.47, the move to 1641.18 can be labeled Wave 1. 1630.88 can then be considered Wave A, and 1646.41 Wave B. The first wave lower from 1646.41 completed at 1633.91, which is within the 1630.88-1641.18 range, and the second wave, 1636.42, within that same range. The last move, to 1628.05, completed below 1630.88, and above 1627.47. This sequence must also satisfy my model’s criteria for a completed wave, which it does. It seems likely, at this point, that the move from 1627.47 to 1641.18 was a Wave 1, and the subsequent move to 1628.05 a complex corrective Wave 2. These types of waves generally result in extremely powerful and swift moves.

The SPX now could have, by my count, completed 5 waves down from 1709, and near the 1621 support level. Considering that the type of wave that may have completed Friday, the market may be ready to start a sustained rally. While I am not ready to call this the end of this corrective phase, I think it is becoming a real possibility.

A move below 1627.47 obviously invalidates this scenario. Support remains at 1621. Resistance is at 1651, 1669, and 1685.

Thursday's Market 08/29/2013

As I indicated may be the case yesterday, the SPX opened to the downside, gapping lower to 1630.88. The index moved sharply higher off that low, quickly surpassing yesterday’s 1641.18 high before pausing. Following that slight pause, the index continued higher, moving to 1645.62, and then chopping higher until it reached 1646.41. After that the SPX turned lower for the remainder of the day, dropping back to 1643 by early afternoon. After a bounce to 1645 the index fell to 1640, and after another bounce to 1643, fell back to 1636.69 by the close.

I mentioned yesterday that the SPX may complete a 5 wave sequence at 1630, and if it then rose above the 1641.18 high, that it may continue to rally towards 1651. The index did complete that sequence this morning at 1630.88, and then moved above that high. The rally fell short of the 1651 level, as the SPX lost most of its gains by the close. The index appeared to complete a sequence higher at 1646.30, marking the third sequence from the 1627.47 low, as 1641.18-1630.88-1646.30. The move lower from that high does not appear to have completed a sequence.

At this point, the three waves higher off the 1627 low would seem to be part of a complex corrective wave, and it is still likely that the SPX will move lower, possibly into the 1621 support level, to complete a sequence from 1669.51. There is a possible count that points to this area as completing a 5 wave sequence from the 1709.24 high. A move to 1621 would complete that sequence right at a support level. Looking longer term, there are three likely scenarios. The first and the one I have spoken most about, calls for the SPX to rally to the 1685 level, before making another leg down to 1540. The second would have the SPX rallying, but falling short of 1685, and would likely lead to a low below 1540. The third has this as the end of the corrective phase, and would be followed by new all-time highs. I have not been convinced that this correction would carry below 1560, so at the moment, this is the scenario that I would favor. A lot will depend on the support/resistance level that I have mentioned, 1621, 1651, 1668, and 1685. A move below the 1621 level would favor the most bearish scenario at this point.

Yesterday I gave a scenario of this wave playing out as 1621-1628-1618, and that still seems to be a good guideline. A move above 1646 would point to 1651, and then 1668 as the next resistance levels.

Wednesday's Market 08/28/2013

The SPX started off slightly to the downside this morning, taking out yesterday’s low by a slim margin before moving higher. That opening move took the index to 1627.47 where it quickly reversed direction. The SPX soon was above 1634, and after a brief four point pullback, continued higher to 1637.37. After another minor pullback, the SPX started a third leg higher for the day, with this one carrying to 1641.18. From that point the index digested its gains into the close, first falling back to 1639, and then 1635.34. After a bounce higher to 1640.12, the index fell to 1635.10 near the close.

Yesterday I said that I expected the SPX to move higher, and after the initial drop to 1627 it did just that. 1627 appears to have completed a 5 wave sequence from 1669.51, but there are some that indicate that may not have completed the entire wave from that point. From the 1627.47 low the SPX completed a 5 wave sequence higher as 1634.07-1630.44-1637.37-1634.99-1641.18. It appears that the index is in the 5^th wave from that high, but has yet to complete a 5 wave sequence.

With that in mind, it is likely that the market should move lower. Given the waves already completed, it would complete a sequence at 1630. If the SPX moves down to 1630, and then back above 1641, I would then expect the move higher to continue to 1651.

The move to 1641 failed to reach certain parameters that would be indicative of the completion of the wave from 1669.51. If the SPX continues lower, and breaks below 1627, this move is likely to continue to 1618. This may play out as 1621-1628-1618. This would allow this third wave from the 1709 high to complete very close to the 1621 support level. From that point the SPX could rally.