Friday's Market 06/29/12

On Thursday, after a steep decline to start the day, the SPX hit the 1313 support, and then started to rally. The previous 5 wave sequence from 1334 broke down into 5 sub-waves, with the impulsive waves diminishing in length. This usually signals an impulsive move in the opposite direction is imminent. The initial move of this rally took the market to 1318.71, which surpassed the previous wave 4 high of 1317.54. This normally confirms the change in trend. The SPX then rallied into the close, nearly reaching 1330.

The rally continued at the open on Friday, with the SPX opening significantly higher. This gap opening was part of an inverted corrective wave 2 from Thursday’s 1313 low. The market continued higher, nearly reaching 1356, and then traded in a narrow up-sloping trading range until hitting 1358.41, right at the 1358 resistance line. After dropping a couple of points to 1356, the SPX moved higher into the close, topping at 1361.63.

Although I had remained bullish as the market was on the verge of breaking down, I have mentioned that the short term waves were a bit confusing. Much of that confusion cleared up today when the SPX hit 1361.63. The market has now formed a clear 5 wave sequence from 1309 to today’s 1362 high. I believe this completes wave 3 from 1307. The fact that the market did not take out the previous high of 1363 is not troublesome, in my view, due to it being part of an inverted corrective wave.

Even though the recent market action was cleared up with Friday’s move, the entire move from 1267 still leaves us with several resolutions. I continue to see this as wave 3 from that level, with wave 3 of 3 completing today. My target for wave 3 has been 1393, and that is still a possibility. However, given the current wave structure, the SPX would have to undergo another rather lengthy correction, back down near 1313, which seems unlikely, for that scenario to play out. Last weekend, I mentioned a secondary target for wave 3 of near 1475. This scenario would require a much smaller correction, which seems more reasonable. The maximum length of this corrective wave would bring the market back down to near 1335. This correction could be much smaller, but given the diminishing impulsive wave lengths from the recent 1313 low, a break below wave 4, at 1356, could trigger a larger correction, with support being near 1345.

One other possibility assumes that my counts to this point have not been correct. The SPX is in a zone that would complete a 5 wave sequence from 1267, and probably mark the end of this entire uptrend. This would require the move from 1306.62 to 1363.46 to be counted as a 5 wave sequence, something that I do not see. It is a possibility, so it deserves a mention. The current move to 1362 would be wave 5 of this sequence. A move above 1365 would nullify this scenario.

I will go into all of this in more detail over the weekend.

Thursday's Market 06/28/2012

It was another very interesting day for the market. It opened sharply lower, moving below the 1326-1323 support level, and then bouncing back into that zone. The support did not hold, as the market continued down, hitting the 1315 support. After another small bounce, the market hit the low of the day at the 1313 support level. At that point, things got really interesting. The market moved sharply higher, gaining back almost all of the earlier losses.

The short term counts are still a little confusing. At the moment it appears the SPX completed a 5 wave sequence from 1309 at 1320. After a small corrective wave, the market completed another 5 wave sequence of one smaller degree at 1334. Today’s drop was wave 2 of that sequence, with wave 3 currently underway.

Short term resistance should be at 1340-1345, 1350, and 1372. Support remains at 1326-1323, and the 1315-1313.

Longer term, my best count from 1267 remains wave 3 of 3, with a target of 1393.

Wednesday's Market 06/27/12

The market opened higher today, quickly moving above the 1323-1326 resistance level to 1327.54. The market then pulled back into that resistance zone to 1323, before moving higher once again. A strong rally off 1323 brought the SPX to almost 1332, and then dropped to 1323. Another rally took the SPX above 1333 and after one more pullback to 1329, rallied to the high of the day at 1334.40. A dip into the close took the market to 1331, before moving higher just before the close.

Yesterday I outlined two scenarios for the market. The first had the SPX completing wave 2 from 1307 Monday at 1309.27. I saw 3, and possibly 4, waves having been completed from 1309, with wave 5 projected to terminate at 1341. The second scenario assumed that 1363 completed a 5 wave sequence from 1267, and the market was headed lower. The most likely count from 1363 would be an inverted corrective wave 2, with an upper limit of about 1329. Today, when the market moved above that level, that count was eliminated, and the first scenario continues to be the most likely in my view.

It appears 4 waves have completed from 1309, wave 1 at 1320, and wave 3 at 1324. Wave 4 completed Wednesday at 1319.62, along with waves 1, and 2 of 5. Today we saw wave 3 at the open, then an inverted corrective wave 4, which terminated at 1328.86. So far, it appears 4 waves have completed from 1328.86. So now I am looking for wave 5, of 5, of 5 from Monday’s 1309 low. I am raising my projection for that wave to 1349, from 1341. This should complete wave 3 from the 1310.51 low.

 

There is one bearish scenario that suggests a 5 wave sequence being completed at today’s 1334 high. Should the market break below 1328 before making a new high, this count may be in play, and the market could see a sharp decline.

Short term support remains at 1326-1323, and then 1315-1313.