Tuesday's Market 07/31/12

The market dropped slightly at the open, falling to 1383 before rebounding to near 1387. The choppiness from yesterday carried over into today, as the market soon fell to 1381. A rally above 1387 was followed by another pullback below 1380. The market rallied one last time to nearly 1385, before falling to the low of the day below 1379 near the close.

It looks like I had the wave structure slightly wrong yesterday. The market did make two moves to the downside as I suggested it might, but it did not carry as low as I thought it might. It now looks like wave 5 from 1391.74 occurred at this morning’s low, and then a larger degree sequence completed at the low near the end of the day.

This wave has formed in such a way, with waves of decreasing length, that the resistance lines are clustered from today’s low, to about 1383.70. The next resistance level would be at 1393, and then 1426. A move above that level, and if the market can hold above that level, would probably result in a move to new uptrend highs.

While my model would allow for very slightly lower lows, a break substantially below, by several points, would most likely mean a rather large move to the downside. Another move to the downside would probably have to result in a complex corrective wave 2, meaning the market could move much lower, perhaps below the 1368 level I am looking at to keep 1497 as the next target.

At the moment I still see the market moving higher. My targets remain either 1426, or 1497. If this level holds, 1497 would be the target.

Resistance is between current levels, and 1383.70, 1393, and 1426. Support is at 1376, 1367, and 1352.

Monday's Market 07/30/12

The market opened slightly higher, moving back over 1387, before moving back under 1385. The market then moved to a new uptrend high at 1391.74. This would appear to be the wave 5 of 3 high, and not Friday’s 1389.19. The market then pulled back, dropping to 1381, before rallying back to 1385.95. The rest of the day was spent in a narrow trading range between 1382, and 1386.

The market formed a clear 5 wave sequence from 1392 to 1381, very near the 1382 support level generated by the wave from 1329 to 1392. The sequence formed after that is a little less clear. It is very close to meeting my model’s criteria, but falls just short. This may be due to the closeness in price of the three peaks, or something else may be forming. If the market falls below 1381.37, I would expect to see another move lower to first 1377-1378, and then near the 1376 support level. If the market moves higher it is possible the market is in the beginning stages of a nested wave that could signal a powerful move.

While 1391 most likely was the completion of wave 3 from 1267, this corrective wave may be quite shallow. In fact, it is possible it has already ended. A breakout to the upside could mean the market is headed to 1497. This correction could carry down to around 1368, and still keep1497 the target. If it completes between 1350 and 1330, the target may move down to 1426.

Support is now at 1382, 1376, 1367, and 1352. Resistance is at 1393, and 1426.

On the chart I posted last Friday, I only showed the major waves, mostly due to the confusion trying to show each wave sometimes leads to. I’ve included a chart today that shows the entire move from 1329, with all waves labeled.

Weekend Outlook 07/29/12

It was another very interesting week for the markets. I had been expecting the market to begin the week to the upside, working its way towards my 1393 target. Instead, it sold off rather sharply at the outset, dropping to 1329.24 by Tuesday afternoon. This kept the market above the previous low of 1325.41, and the market started to rally off that low. The rally continued on Wednesday, and kicked into high gear on Thursday with a gap to the upside. The market worked higher the remainder of Thursday, and then carried the rally into Friday. By Friday afternoon, the SPX had reached 1389.19, a rally of nearly 60 points from Tuesday’s low.

This week’s rally took the market to the 1387-1397 cluster of resistance, and within 4 points of my target for wave 3 from 1267. Last week I outlined my favored scenario in which we started the week in wave 4 from 1309.27, of wave 3 from 1267. Tuesday’s 1329 low marked the termination point of wave 4, and then the market completed a 5 wave sequence at the week’s high of 1389.19. This appears to be the end of wave 5, and thus wave 3 from 1267.

I continue to see this as a bull market from the March 2009 low of 666.79. The market formed a 5 wave sequence from that low to 1422.38. I see this sequence as 1219.80-1010.91-1370.58-1074.77-1422.38. This then became wave 1 of another sequence. Wave 2 was the recent correction to 1266.74. I have two possible projections for wave 3 of this sequence, 1426, and 1497.

Wave 3 of this sequence is unfolding now, with at least two, and possibly 3 waves having been completed. Wave 1 completed at 1335.52. Wave 2 was a complex semi-inverted corrective wave which terminated at the 1309.27 low. Wave 1 of this third wave completed at 1320.29, and was followed by a complex inverted corrective wave which took the market to a high of 1374.81, before terminating at 1325.41. Wave 3 reached 1380.39, with wave 4 completing with Tuesday’s low of 1329.24. With the completion of the 5 wave sequence on Friday at 1389.19 the market has most likely completed wave 5, and wave 3 from 1266.74.

 There is still the possibility that the market will move slightly higher before actually completing this wave. If it does, it should remain within the cluster of resistance at 1387-1397. For the moment, I will assume the wave has completed, and discuss what we might see next from the market. This next move higher should take the market to either 1426, or 1497. At the moment, 1497 seems the more likely. The extent of this corrective wave should give us the answer. A correction that terminates between current levels, and 1368, would point to 1497 as the next target. If the correction moves lower, between 1350, and 1330, 1426 would be my target.

Support is at 1382-1385, 1376, and 1352. Resistance is at 1387-1397, and 1426.