Weekend Outlook 09/21/2013

It was another interesting week for the markets, as all eyes were on the FED. Monday opened with the SPX gapping higher, up to 1703.74. The index then traded sideways up until the announcement Wednesday afternoon. Immediately following the announcement the SPX ran up to 1729 on Wednesday, and followed it up with a slightly higher high on Thursday at 1729.86. It was all downhill after that, as the SPX relinquished most of its gains by the close on Friday, dropping back to 1709.

As I mentioned last week, the SPX has now entered the range to complete 5 wave sequence from the 1627.47 August low. However, there are some indications that the market will make at least one more move higher before it actually completes that sequence.

I have been looking at a target of 1776 to complete a sequence from the October 2011 low of 1074.77. By my count the SPX is now in the third wave of a sequence from 1560.33 that will eventually complete that sequence. The first wave of this sequence completed at 1709.24, and the second at 1627.47. From that low, my count has four waves completed as 1641.18-1640.62-1664.83-1681.96. The fifth wave of this sequence has been difficult to follow on a short term basis, but a look at the longer term count can possibly clarify things to some extent.

Since the minimum target to complete the longer term wave from 1074.77 is 1776, the shorter term waves would also need to project into the same area. If the third wave completed at 1729.86, and this pullback has already carried down to 1708.89, the maximum target for wave 5 would be 1765, short of the 1776 target. For this reason, I would still expect another move higher, perhaps to 1745, before this wave ends. A move to 1745, followed by a pullback to around 1700, still seems to be the most likely scenario.

There a two possible short term counts for this wave which would project into the 1776 range.  The first is my original count, with 1703.74 being wave 1 of wave 5 from 1627. This would allow for the SPX to move slightly lower and still project to 1745. The second involves wave 1 ending before 1703.74, which was then followed by a complex inverted corrective wave. This scenario does fit better from the technical side. The complex corrective wave would have to have ended at Friday’s 1708.89 low, so if the SPX moves lower on Monday, this scenario would be out the window.

It still appears most likely, from my analysis that the SPX should move higher, possibly to 1745, and then be followed by a pullback to near 1700. One final move higher to above 1776 would then complete the entire sequence from the 1074.77 low.

Wednesday's Market 09/18/2013

The SPX opened slightly higher, and continued slightly higher into mid-morning. At that point it turned slightly lower, dropping below yesterday’s late afternoon low, and nullifying my very short term count. The index continued moving lower until mid-day, when it started moving higher in anticipation of the FOMC statement. After the release of the statement, the SPX moved sharply higher, making a new all-time high, and reaching 1729. After that, the index moved lower into the close.

As I mentioned, the move lower this morning made my very short term count from 1681.96 incorrect. I still see this as a wave 5 from the 1627 low, which has now moved above the minimum target level. It would appear that this wave has not yet completed, and I continue to look at the 1745 optimal target level as a possibility. I would expect the current wave to end before reaching 1776. Should the market move above that level, the possibility exists that the entire wave from 1074.77 is completing.

Tuesday's Market 09/17/2013

Having completed a semi-inverted corrective wave from Monday’s explosive opening late yesterday afternoon, the SPX was poised to move higher this morning, and it did. Today’s open was more muted than yesterday’s, but the index moved steadily higher, moving up to 1704. After a small pullback the SPX advanced again, this time to 1705.24. Another pullback was followed by a third move higher, with the index reaching the high of the day at 1705.52. This completed a 5 wave sequence from yesterday’s late afternoon low. After that the index completed three waves down at 1704.03-1705.33-1703.63 before moving higher into the close.

It now appears like the semi-inverted corrective wave that completed yesterday was but the first wave of an inverted corrective wave that completed this afternoon at 1703.63. Interestingly, this is the same structure that started this entire rally from 1627. By my count, the SPX has now completed wave 2 of 5 from that 1627 low. It would appear that the index is in the final stages of this wave. My target remains at 1745, but that is my optimal target. The minimum target, given my interpretation of the wave structure, would be 1713. A fairly wide range to be sure, but that is usually the case with a wave structure such as this, with the impulse waves increasing in length. Sometimes the smaller degree waves can narrow the range, but with only two waves of wave 5 completed, that is not the case at the moment.

I have been looking for this wave to end near 1745, and then be followed by a move lower to around 1680. As I said, the exact end of the current wave is difficult to pinpoint, but this has been a rather extended advance, and the risks of a pullback are growing. It is important to note that the 1680 number should not be taken as a target, but as a guideline at the moment. It is just as likely to see a shorter pullback, and then a continuation of the advance into the 17733-1776 area. I am content to see how this plays out over the next couple of days, or through the completion of this wave.

I am looking for the current wave from 1627 to complete above 1713, with an optimum target of 1745. Support remains at 1685, 1669, and then 1661.