Tuesday's Market 08/13/2013

The SPX opened slightly higher this morning, hitting 1692.99 before quickly changing direction. After that initial move higher the index fell to a new short term low at 1682.62. The bulls finally gained some momentum, as the SPX changed course again, and rose sharply into mid-afternoon. It reached a high of 1696.81 before turning choppy, and drifted lower into the close.

Although the count from 1709 high has been difficult to say the least, it would still appear that the SPX has completed a complex corrective wave at 1683. This still supports a move to new highs, with my target remaining at a minimum of 1776.

The short term count from today’s low appears to indicate a move higher, and if so, would project to above 1705. It looks like this may be the markets best chance of breaking out to new highs. If it fails to do so, the bears may get another chance to take it down further.

I am still looking for a move above 1709 to confirm a resumption of the uptrend. Below the 1683 level, support is at 1676, and then 1668.

Monday's Market 08/12/2013

The market kept to the same script we saw much of last week; an opening gap down to start the day, followed by a slow drift higher into the close. Although the patterns were similar, there was one key difference worth noting. In all the instances last week, with the exception of last Monday, the initial move to the downside did not hold as the low of the day. Today it did. It is also worth noting that today’s action was identical to last Monday’s trading action; a gap down to open, followed by a lower high, a higher low, and then another lower high. That pattern led to a move lower into today. Last Monday, however, the market was coming off overbought levels at the 60 minute time frame, while today the SPX hit oversold with a positive divergence.

As I mentioned above, the SPX gapped down at the open today, and took out the 1684.91 low along the way. The index rallied almost immediately from that point, rebounding to 1691.49. After that, the SPX moved lower, dipping to 1686.34, before rebounding into the close.

The move below 1685 took the 1604.57-1698.38-1676.03-1709.24-1684.91 inverted corrective wave scenario I had talked about over the weekend out of play. Last Friday, the Dow made a new short term low, while the SPX did not. That index seemed to complete an inverted corrective wave with the last three waves forming a zig-zag from the 15655.75 high. Today, the SPX hit a new short term low, while the Dow did not. It would appear that the SPX has completed an inverted corrective wave in the same fashion. As I noted over the weekend, the move from the recent 1684.51 high has been difficult to follow. Over the weekend I treated 1698.38 as the end of the wave from the 1604.57 low, but it now appears that wave carried all the way to 1709.24. The inverted corrective wave can then be counted as 1604.57-1709.24-1684.91-1700.18-1683.35. This seems to be supported by the fact that the move from 1709.24 to 1683.35 appears to have completed with 3 waves.

It is still possible for the market to move further to the downside, with support at 1676, and then 1668. I still expect the SPX to move higher, with a minimum target of 1776. A move above 1709 would likely confirm that.

Weekend Outlook 08/11/2013

After the SPX hit a low of 1560.33 on June 24^th, the index advanced in a relatively easy to follow manner until it reached 1684.51 on July 15^th. The SPX completed a 5 wave sequence higher to 1626.61, which was followed by a corrective sequence, and then another sequence higher to 1684.51. Since that point, the index has traded in a fairly narrow range, bounded by 1672 on the lower end, and 1709 on the higher end. The price action during that span has been quite choppy, and difficult to track on a short term basis. During each sequence, the market tends to reach a point of indecision that tests the resolve of participants. It seems we are at that point now. At times like these, it is best to consider all possibilities, determine the most probable course of action, but be prepared for other potentialities.

After reaching an all time high last Friday of 1709.36, the SPX opened lower on Monday, rallied to challenge that high at 1709.24, and then traded flat for the remainder of the day. On Tuesday and Wednesday the index opened markedly lower, and then drifted higher onto the close. On Tuesday the SPX hit a low of 1693, and 1685 on Wednesday. Thursday saw a gap up open, followed by a drop to close the gap, and then a rally to just below the opening highs. The SPX opened lower again on Friday, tested the 1685 low, but held above it, and then moved higher.

When considering the possible short term direction of the market, it is important to also understand where the market is on a larger scale. Starting with the weekly chart, the SPX has completed 4 sequences from the 666.79 low. These completed at 1219.80-1010.91-1370.58-1074.77. It is not possible, given the sequences already completed, for a larger sequence to terminate with this uptrend. The SPX is forming a complex corrective wave, with the implication being that this bull market has further to run after this uptrend completes. Using the sub-waves of the move from 1010.91 to 1370.58, the minimum projection for the current uptrend would be 1708, which we have surpassed. The range for this sequence is admittedly somewhat large, but it gives an initial target. My current target of 1776 also falls within this range. One technical point of note on this chart is the RSI(14). Notice at the 1010.91 low, this indicator bottomed at 38.05, while it reached a lower low of 29.67 when the market corrected to 1074.77. This lower low on the RSI(14), coupled with a higher price low, is seen often during the formation of complex corrective waves.

The Daily chart clearly shows the SPX in the ninth wave from the 1074.77 low. This is supported by not only the sub-wave counts within each individual wave, but by technical indicators such as the RSI(14), and the MACD. My current count has waves 1, 2, and 3 completing at 1292.66-1158.66-1422.38. This was followed by an inverted corrective wave 4 at 1266.74-1470.96-1343.35-1687.18-1560.33. The three declines during this period were 156, 128, and 127 points. Notice the proportionality of those declines, and the fact that the declines decrease as the starting points increase. Given this count, Wave 5 projects to a minimum of 1776.

Cutting through all the noise, and looking strictly at the 60 Minute chart from the 1560.33 low, it certainly appears as if the SPX completed a wave 1 at 1626.61, and has been followed by an inverted corrective wave 2 at 1604.57-1698.38-1676.03-1709.24-1684.91. These declines have been 22.04, 22.35, and 24.33 points. Again the lengths of the declines have been similar, and have increased slightly as the starting point has increased. Also notice the lower RSI(14) readings at points A, C, and E. Lower readings on the indicator, coupled with higher lows on the index. This count would suggest that 1684.91 was the low, and the SPX should now continue higher from here.

Given my target of 1776, the likely course of action would be a move to around 1748, followed by a pullback, and then another move higher to 1776. Shorter term, I have an initial upside target of 1711.

That is my case for the bullish scenario. It is possible, given the action of the market lately that this will not play out as I suggest. If the SPX breaks below 1685, the next likely target is 1668. Even if 1685 does not hold, I expect to see 1776 before 1560.