Thursday's Market 06/21/12

This morning the market opened slightly higher, moving up to the 1358 resistance line, and completing a 5 wave sequence from yesterday afternoon’s 1347 low. The market then pulled back to 1349, and then tried to rally. The rally failed to move above 1358, only making it to 1352 before moving lower again. Once the SPX moved below 1347, it headed straight down, barely pausing on its way to 1324.

Yesterday I mentioned some positive wave structures developing, with a move above 1362 meaning a resumption of the uptrend, and a drop below 1347 indicating a continuation of the corrective sequence from 1362, with support between 1326, and 1324.

The contracting wave structure I talked about yesterday theoretically would have meant a break of 1347 would result in ever smaller waves, eventually leading to a move higher. The market circumvented this structure by forming an inverted corrective wave from 1347. This inverted corrective wave also contained an inverted corrective wave, resulting in the steep downward move we saw today. The decline did, however, end today right within the 1326-1323 support area I have identified, which completed a rather complex 5 wave sequence from 1362. This unfortunately only completes 3 waves from 1363, with another wave down to come.

It seems most likely at this point that the 5 wave sequence from 1363 will itself contain an inverted corrective wave 2. From 1363, 1346 would be wave 1, 1362 would then become wave 1 of an inverted corrective wave from 1346. Today’s move would be wave 2 of that inverted corrective wave. Today’s 1324.41 low should be the low of this inverted corrective wave. Wave 3 should be a move higher, probably less than 15 points, a move down terminating above 1324, and another move higher, again probably less than 15 points. At that point we would see waves 3, 4, and 5 complete from 1363. Wave 5 could complete back near today’s levels, or continue down to the next support level at 1313.

Near term, a move above 1327.22 from today’s low would indicate the scenario I outlined above was occurring. If the market breaks 1324, the down move will continue, perhaps to the 1313 support level.

Longer term, I current count remains intact. At this point the market would need to break 1310 before invalidating the current count.

Thank you for your interest.

Wednesday's Market 06/20/12

As I noted yesterday, the SPX finished a 5 wave sequence down from 1363 Tuesday afternoon at 1357. This morning the market opened higher, continuing the move up from that 1357 low. 1357 would soon prove to be only wave 1 of another sequence down, however, with today’s higher opening completing wave 2. The market quickly fell below 1357, dropping below 1355. The market then rallied to the 1358 resistance level, and fell back once again. After again falling below 1355, the market tried to rally again, but this time only made it to the 1357 resistance level. At that point the market fell sharply, dropping to 1346.45. This completed another 5 wave sequence from the 1363 high. A more robust rally ensued from there, and the SPX rather quickly found itself above 1361, completing a sequence from 1346. Almost as quickly as the market rose, it fell once again to near the previous low, but held above it. The SPX then rose into the close, making it back to 1355.

My outlook yesterday was fairly pessimistic, mostly based on the wave structure from 1363. In the move from that high, to the sequence low of 1357, the impulsive waves 1, 3, and 5, were increasing in length. That usually indicates the move has further to go. That played out today, as the 1357 low did not hold, and the market fell to 1346. The impulsive waves in this sequence were contracting, indicating the move may be nearing an end. The ensuing move higher, from 1346, to 1362, contains expanding waves, and the drop back to 1347 contracting waves. All these structures would indicate the move lower may be at, or near an end, with a move higher imminent.

I currently have this move as wave 4 from 1306.62. Thus far, the correction from 1363 has been 17 points, almost precisely that of wave 2 of this sequence, from 1327, to 1310. In the case of inverted corrective sequences, waves 1, 3, and 5 typically are very similar in length. This opens the possibility of the entire move from 1327.28 forming an inverted corrective wave. If this is the case, we should see another impulsive move higher, followed by another wave down of approximately 17 points.

Near term, a break of 1347 would indicate a further move to the downside, with support clustered between 1326, and 1323. Resistance is still at 1357-1358. If we move above that, I will be watching 1361. If the market moves above that, we should be on our way back up.

Thank you for your interest.

Tuesday's Market 06/19/12

The market gapped to the upside this morning, reaching 1353 in the first few minutes of trading. This opening move eliminated the two alternate scenarios I discussed yesterday, keeping my main count intact. After only a minor pullback from 1353, the SPX continued higher, moving to 1359, then 1360, and finally a strong move to 1363.46. After that strong move up however, the market quickly reversed course, dropping back near 1357 before finding support. The ensuing rally could only carry the market back to 1361.51, before moving back down to 1357. In the final minutes of trading, the SPX moved slightly off its lows.

The move today from my 1344 wave 4 low, unfolded in 5 waves, with wave 1 being the opening move to 1353. The second move of the day to 1358 was wave 3; with wave 5 subdividing into 5 waves, and terminating at 1363.46. This was very near our optimum wave 3 target of 1367. I was looking at three separate relationships all converging on that number, and today’s high satisfies my model in all respects.

It seems that the market has now completed a 5 wave sequence from 1307, and three waves thus far from 1267. From this point I was expecting a corrective sequence, and then wave 5 from 1267 to terminate near 1393. The move today from 1363 to 1357 breaks down into 5 waves. There is also support at 1358, and 1357, given the wave structure from 1307. If the corrective wave ends there, it now appears that wave 5 will carry above my original 1393 projection, and terminate between 1410, and 1414. This would complete the 5 wave sequence from 1267.

If the correction does not end here at 1357, things are a little less rosy. I mentioned support at 1358, and 1357, but there is then a large gap before the next support levels. The next cluster of support is between 1326, and 1323, and then between 1315, and 1313. While another move higher would still be in order, the wave 5 projection for this scenario would be between 1372, and 1381.

While there are other scenarios, these two seem the most likely. A move above today’s high of 1363 would spark another strong rally, moving the market above 1400 to the 1410-1414 level.

Conversely, a break below 1357 would result in what appears would be a rather significant sell-off into the 1320’s. This sell-off should hold above 1307, with wave 5 from 1267 terminating between 1372, and 1381.

Thank you for your interest.