Monday's Market 05/06/2013

I was expecting a continuation of the pullback from Friday’s record high, but that did not materialize. Instead the market moved higher and recorded yet another all-time high. This may have put the market in a precarious situation, however, as I will explain in a minute.

The SPX opened higher to 1617 before pulling back to 1614. Another move higher took the index above 1618, and again was followed by a pullback, this time to 1615. The SPX then moved higher into the afternoon, reaching a new high at 1619.77. From there the SPX moved lower, dropping to 1616.68.

It appears I missed a wave for the inverted corrective wave yesterday afternoon, and the 5 Wave sequence from 1618.46 at 1612.85. The move to the new record high of 1619.77 completed another 5 Wave sequence. From the 1581.28 low, the market has now completed a sequence to 1618.46, a sequence to 1581.28, and a sequence to 1619.77. Since I was looking for Waves 3, 4, and 5 from 1074.77, we may have seen the completion of that wave today. It has been very difficult to call a top in this market, but I can now set some parameters to watch. If the SPX moves below 1612.85, I would say a 5 Wave sequence from 1074.77 has completed, and we are likely to see a correction. If the SPX moves above 1619.77, it is possible to then complete a 5 Wave sequence from the 1581.28 low, which would most likely mean the end of Wave 3 from 1074.77. A small pullback would then be expected, followed by one more move higher.

Thank you.

Weekend Outlook 05/05/2013

It has been quite a ride for the last several weeks, with the market making both sharp moves higher, and lower. These moves were difficult to decipher at first, having followed the more straight forward trends that had been in place since the 1074.77 low back in October 2011. A couple of weeks ago I identified the sub-wave structure from that low as a series of nested inverted corrective waves. These are denoted on the Daily chart as a series of 1’s, followed by A’s. In a normal wave sequence, you would have a 5 wave impulse sequence, numbered 1 through 5, followed by a 5 wave corrective sequence, which I letter with A through E. In a sequence with an inverted corrective wave, you have a 5 wave impulse sequence to form Wave 1, followed by a counter-trend Wave A. Wave B then forms a 5 wave sequence that exceeds Wave 1. Waves C, D, and E then complete in either a “zig-zag” fashion from Wave B, or with Wave D exceeding Wave B. Wave E will not exceed Wave A.

From 1074.77 you can see Wave 1 completes at 1292.66, and is followed by Wave A at 1158.66. Wave B then forms a 5 wave sequence that does not complete until 1597.35. Wave 1 of that sequence, which is the move from 1158.66 to 1422.38, also contains an inverted corrective wave. As you can see on the Daily chart, several of these waves formed from 1074.77 to 1426.19. The SPX has been in the process of completing these inverted corrective waves since it hit 1530.94 back in February. This explains the series of three waves up, followed by three waves down that have occurred since that point. On Wednesday the SPX completed Wave 2 of the largest degree sequence which began with the 1074.77 low. Once this sequence completes, we could finally see a meaningful correction.

It felt like a roller-coaster ride this week. The SPX spiked up 14 points on Monday, completing a 20 point rally that started the previous Friday. That spike was promptly followed by a 10 point sell-off Monday afternoon into Tuesday. By Tuesday’s close, however, the index had gained back that entire loss, and then some. Wednesday saw another sell-off, with the SPX dropping 16 points. Once again, the loss did not last long, as the SPX recovered on Thursday, hitting another all-time high. On Friday the market was sharply higher again, with the SPX making still another all-time high, smashing through the 1600 barrier, and hitting 1618.46.

Wednesday’s 1581.28 completed Wave 2 from 1074.77, and Wave 3 of that sequence may have ended on Friday. From here I would expect a drop to 1599, followed by a move to 1630 to complete the sequence. Once that sequence is completed, there are several scenarios that may play out. None of these involve this being the end of this bull market.

I am continuing to count the move from 666.79 to 1370.58 as a complete 5 wave sequence. If that count holds true, 1074.77 would remain Wave A of an inverted corrective wave, and 1630 Wave B.  The inverted corrective wave should then complete for Wave 2 from 666.79. We would then see Waves 3, 4, and 5 to complete the entire sequence from 666.79 before this bull market ends. There are variations of this theme that are possible, but elucidating on them is best left as they arise. Should the current wave end at 1630, support for this correction should be near 1545.

Most of the scenarios that I foresee would keep that 1545 level as support. There is one scenario, however, that does point to sharply lower prices. My original count had the rise from 666.79 to 1219.80 as a complete 5 Wave sequence, and I have been leaning back to that count as of late. I then had the move from 1010.91 to 1370.58 as a separate 5 Wave sequence. With this count 1219.80 would be Wave 1, with the correction to 1010.91 as Wave A of an inverted corrective wave. 1370.58 would then be Wave B, 1074.77 Wave C, and 1630, or the upcoming top, to be Wave D. This would mean that Wave E would need to complete below 1245. This would complete Wave 2 from 666.79, with Waves 3, 4, and 5 left to the upside. Admittedly this seems like a low probability, but after the run-up we have seen, and with sentiment so high, I think it is worth keeping in mind.

For now I will continue to take this market one step at a time, and not try to get too far ahead of it. I think we see a correction to around 1599, followed by one mare rally to 1630. After that I would expect some sort of correction, with support at 1545.

Thank you.

Friday's Market 05/03/2013

It was another record day for the markets. This seemingly endless uptrend will end eventually, I think, but today was not the day.

As I had mentioned yesterday, there was considerable resistance at 1598-1602, and the only way through that level would be through an inverted corrective wave, which I said could be forming, and would result in a gap above that level. Gap it did, as the SPX reached 1616 in the opening minutes of trading, and then continued on to 1618.42. The SPX drifted lower for most of the day after that, falling to 1613 before rebounding to 1616. The SPX then moved lower into the close.

It appears that Waves A, B, and C of the inverted corrective wave formed yesterday after the late afternoon 1598.60 high. Wave D was the gap opening to 1616.16, and the dip to 1613.06 that followed was Wave E, and completed the wave.  This completed Wave 2 from 1581.28, and Waves 3, 4, and 5 quickly followed, at completed the sequence at 1618.42.

The consolidation that occurred through the rest of the day appears to be a wave 1, and then an inverted corrective wave 2. This would suggest that the SPX will continue to move lower to complete the 5 wave sequence. The next support level would be 1599, and that seems like a likely spot for this move lower to end. I would then put a price target for the next advance at 1630.

1630 would then mark the end of a complete sequence from the 1074.77 low. To complete the entire sequence from 666.79 therefore, I would expect to see a corrective wave from 1630, followed by a move higher, another corrective sequence, and one final move higher. Sp although 1630 would complete a sequence from 1074.77; it would not necessarily mean more than a modest correction. There are several ways the rest of this sequence could play out, however, with the wild card being the depth of this correction from the possible 1630 level. I will try to cover this in more detail over the weekend.

Thank you.