Tuesday's Market 08/27/2013

The SPX opened with a gap to the downside, dropping initially to 1640.36, which was followed by a small bounce, and then 1638.24. After another bounce that lifted the index to 1643.99, the SPX spent the remainder of the trading session drifting ever lower, finding the low of the day at 1629.05 shortly before the close.

Today’s action in the SPX would appear to be a continuation of a single wave from yesterday’s 1669.51 high. From that high, the index completed the first wave lower at 1666.76. After then completing waves A, B, and C of an inverted corrective wave, the index began to form wave D, which began to sub-divide. The first 4 waves completed near the close yesterday afternoon, and completed this morning when the SPX reached 1638.24. The bounce off of that low to 1643.99 then completed wave E, and the inverted corrective wave 2 from 1666.76. As the market drifted lower this afternoon, it appears to have completed waves 3, 4, and 5 from that high at 1634.27-1638.42-1630.41.

Looking at this entire move from the al-time high of 1709.36, I count an initial wave down at 1684.91. From there the SPX completed a complex inverted corrective wave that went 1700.18-1646.00-1661.83-1654.81-1669.51. The wave that completed today at 1630.41 thus completed the third wave down from the all-time high. Given that scenario, I would expect the market to move higher at this point, before completing one more move down.

Since this move began, I have pointed to four levels of support/resistance. Those levels have been 1685, 1669, 1651, and 1621. The initial move lower reached the 1685 support level, with the next move lower pausing at the 1651 level before breaking below it. The recent high took the SPX to the 1669 resistance level. A move back to 1651 at this point would target 1621 as the low of the 5^th wave from 1709.

If this scenario plays out, the market will be at a very decisive point. As I articulated before, a move to 1621-1685-1540 would complete a semi-inverted corrective wave from 1687. I am still not convinced that this move will carry below 1560, so if the SPX gets back to 1685, there is a good chance that it will continue higher. There are still several ways in which this market can go, so at this point it is best to keep a close watch on the critical levels. If the SPX fails to reach 1651, it could be headed much lower. A decisive break of the 1621 level would also point to lower levels. If the SPX can find support at 1621, and then rally above 1669, it could be an indication that this corrective wave may be over.

Friday's Market 08/16/2013

Coming off the brutal down move from yesterday, the SPX had a somewhat calmer session today, trading within a narrower 13 point range, but still moving to the downside. The index started slightly to the downside, and shed several more points as it fell to 1656.17. The SPX then started to move to the upside rising first to 1662.43, and then 1663.60 after a small pullback. That high brought on another round of selling, as the index fell into the afternoon, hitting another near term low of 1652.61. Another rebound followed, but after rising to 1659.55, the SPX fell again into the close.

Yesterday I said that the SPX had completed a 5 wave sequence down at 1658.69, would likely experience more movement to the downside, with support at 1651, and then 1621. The SPX did move further to the downside today, and made a low at 1652.61. It appears that the index completed a larger degree sequence from the 1709 high today. Using yesterday’s 1658.69 low as Wave 1, the rebound to 1664.58 was Wave 2. This morning’s drop to 1656.17 completed Wave 3, and was followed by an inverted corrective wave 4 that completed at 1659.55. The late afternoon fade to 1655.93 would then appear to complete Wave 5, and the entire sequence from 1709.

The SPX has now completed a 5 wave sequence from 1709 right at the first support level. This was accompanied by extreme RSI(5) readings on the 60 Minute chart, and a positive divergence. The short term chart shows a lower RSI(5) reading as compared with the 1652.61 low, with a higher index level. This also could be a short term positive. A move above 1660 would likely indicate that a rebound is underway, with resistance at 1669, and then 1685. Support is at 1651, and then 1621. A move below the 1651 area would indicate the SPX may be headed to the next support level.

While it is still possible that this is the end of the correction, and that the market is on its way higher, it is becoming more and more likely that there is a substantial move down ahead before the move higher can begin.  My reason for the 1776 target level has been the longer term count as seen on the Daily chart. I have counted Waves 1, 2, and 3 completing as 1292.66-1158.66-1422.38. I then saw an inverted corrective wave completing as 1266.74-1470.96-1343.35-1687.18-1560.33. The alternative counts would require many more waves to complete before the end of the uptrend from 1074.77, and seemed very unlikely. A very interesting alternative has begun to emerge. In this scenario, everything up to the 1687.18 high would remain the same. It is then possible for Wave E of that large inverted corrective wave to be forming a complex wave, in this case, a semi-inverted corrective wave. Wave A would be the move from 1687.18 to 1560.33. Wave B from 1560.33 to 1709.24, and Wave C underway. In these complex waves Wave C would need to complete above 1560.33, Wave D below 1687.18, and then Wave E below 1560.33.

As I have mentioned, support is at 1651, and then 1621, both above 1560.33. Resistance is at 1669, and then 1685, both below 1687.18. The other thing I need to keep n mind is the fact that the end of this wave must also complete within the range to complete the longer term inverted corrective wave, which has a lower boundary of 1542. This gives a fairly narrow range to work with, as this wave must then complete below 1560.33, and above 1542. An initial move to 1651 or 1621, followed by a rebound to 1685, would both satisfy those conditions. In the first case Wave E would project to 1651, and in the second, 1654.

In essence this means that the entire move from 1687.18 could be one complex correction, projecting a low of between 1560.33 and 1542. Since the low of this move would approximate the 1560.33 low, the ensuing move higher would project into the same range, namely the 1776 area.

Thursday's Market 08/15/2013

After finally completing a 5 wave sequence from 1709 yesterday, the market took little time deciding on its next move. After a small bounce yesterday afternoon, the SPX gapped down n a big way this morning. The index fell below 1670 at the open, and continued lower until it reached 1659. The SPX tried to recover from that point, but could only make it to 1668 before turning lower once again. The index finally hit the low of the day at 1658.59, after tumbling nearly 27 points. From that point the index moved slightly higher to 1664.58, and then ended the day trading within that narrow range.

I mentioned yesterday that the SPX had finally completed a 5 wave sequence from 1709 at 1684.83. The drop today was then part of an inverted corrective wave that ended at 1667.60, with the index then completing a higher degree sequence from 1709 at 1658.59. This move invalidates my longer term count from 1560.33, which I had been viewing as a Wave 1 to 1626.61, and was being followed by an inverted corrective wave. The next most likely count has three waves completing from 1560.33 to 1709.24, with wave 4 in progress now. This count would still project a wave 5 high in the 1776 range I have been mentioning.

The next possibility is that the SPX completed 5 waves from 1560.33 to 1709. This would open up several options, but generally point to a low above 1560, with an ensuing high around 1776.

The SPX hit extreme oversold readings today, and so it would not be surprising to see a bounce at any point, but it is likely that there will be some more movement to the downside.

Support is at 1651, and the 1621, with resistance at 1669, and then 1685.