Wednesday's Market 09/11/2013

The SPX opened to the downside this morning, slipping to 1680.90 before bouncing back to 1683.29. Another dip took it to 1678.70, just above the 1678.29 Wave 4 low I had mentioned yesterday was a critical level to watch. From there the index moved steadily higher, topping at 1688.13. Another dip took the SPX down to 1685.09, before a final push higher into the close took the index to 1688.59.

Although on the surface this appeared to be a fairly typical trading day, it is noteworthy for several reasons. The SPX fell to 1678.70, but remained above the critical 1678.29 level, which means my current count has not been invalidated. The index also rose above 1687.18 May 22^nd high. This means that the semi-inverted corrective wave, which would have indicated a move down to below 1560, is no longer applicable. This does not mean the market cannot go down, of course, simply that the given scenario no longer is possible. Lastly, the SPX did not enter the 1690-1697 range that would likely have completed both a 5 wave sequence from both 1654.45, and 1627.47.

Looking at the wave structure from 1683.77, which I see as Wave 3 from 1654.45, it now looks like the SPX has completed a complex corrective wave from that point, to today’s 1685.09 late afternoon low. This is unusual since Wave 2 was also a complex wave. Normally only wave 2 OR wave 4 is complex, but rarely both. If this is indeed the case, it has the effect of raising the upper limit for wave 5 to 1708. This would be above the upper limit of wave 5 from 1627 as I currently have it. If the wave from 1654 does complete above 1700, it would open the possibility that the wave from 1627 is also undergoing a complex wave 4, even though wave 2 was a complex wave. If so, the market could undergo a small correction, and then target Wave 5 from 1627 at 1745, the other target level I have been mentioning. This seems to fit quite nicely.

If this works out, the SPX should put in a near term top between 1700 and 1708, undergo a pullback that should hold above 1668, and then move up to 1745.

1678.29 remains a critical level, as a drop below that could mean the SPX has made a short term top. The probabilities now favor a move to new highs, with a target of 1745. That, of course, is not the same as saying that the market cannot go down. The SPX has now risen over 60 points from the 1627.47 low, and some short term indicators are now in overbought territory. Support is at 1685, 1669, and then 1651.

It would be nice to see new all-time highs, as that would increase even further the probability of an additional move higher, it looks like that confirmation signal may have to wait. At the moment I would look for at least a short term high from 1690 to 1708. Exactly where that top occurs may give further insight into the longer term outlook and wave structure.

Tuesday's Market 09/10/2013

The SPX gapped up again this morning, and barely looked back. After hitting 1681 shortly after the open, the index continued higher until it reached 1683.77. From there the SPX pulled back 5 points, and then worked its way back to the intra-day high, and then surpassed it at the close.

I have been outlining two scenarios lately, one which has the market moving to new highs, 1745, and the other which has the SPX resuming its downtrend to below 1560. I have stated that the 1680-1687 range would be the battleground, and today the index found itself within that range. A top in this area would point to a continuation down to below 1560, while a move above 1687 would indicate a move to new highs.

  I have been looking at two wave sequences, with the first being from the 1627.47 low. Wave 1 of this wave completed at 1641.18, and was followed by a complex corrective wave that completed at 1640.62. Wave 3 completed Friday at 1664.83, and Wave 4 at 1654.45. This gives a target for Wave 5 above 1683. The second is from the 1654.45 Wave 4 low. Wave 1 of this 5^th wave completed at 1666.15. After a complex corrective Wave 2, this ended yesterday at 1670.01. At the moment it appears that the move above 1683 today only completed Wave 3 of this sequence. The pullback to 1678 then looks like Wave 4, but the SPX has yet to complete Wave 5.

The upper limit of the wave from 1627.47 is 1699, and I can now give a target range for Wave 5 of this sequence as 1690 to 1697. It now appears quite likely that the wave from 1627 will complete between 1690 and 1697, above 1687, and would indicate a move to new highs. I will be looking for a move above 1687 to confirm this scenario. If the SPX moves below 1678.29, the Wave 4 low, before moving above 1687, my short term count from that low is probably wrong, and the more bearish scenario would be in play.

A move above 1687 would indicate new highs, while a move below 1678, without moving above 1687 would most likely mean a move to below 1560.

Monday's Market 09/09/2013

The SPX gapped higher at the open, hitting 1663, and then 1666.15 after a small pullback. After reaching 1666, the index paused, dropping 4.5 points before resuming the move higher. The SPX rose steadily until late afternoon, rising to 1672.4, before spending the last part of the day trading sideways, between that high and 1670.01.

On Friday I said that it appeared the SPX had completed a 5 wave sequence at 1664.83, and another to the downside at 1654.45, indicating another move higher was likely. With today’s move higher, that seems to have been the correct interpretation. The move to 1666.15 this morning looks to be a wave 1, which was followed by an inverted corrective wave 2, which completed this afternoon at 1670.01. This would mean that SPX should make at least one more move higher.

By way of review, I have been looking at two possible scenarios for this wave. The first is that this is part of a complex correction from 1687 that would go something like 1687.18-1560.33-1709.24-1627.47-1685?-1540? This scenario would require the current wave to complete between 1680 and 1687. I erroneously stated on Friday that the SPX would need to drop further than Friday afternoon’s 1654.45 low for the current wave, as I have been counting it, to complete within that range. I apologize for that, as this wave from 1627.47, as currently constructed, could complete above 1683.

The second scenario has 1687.18 as a top, 1560.33 as a bottom, and a 5 wave sequence underway from that point that would go 1709.24-1627.47-1745-1680-1773. This had been the preferred sequence, as until Friday it looked as though the wave from1627 would complete above 1687. However, after I identified the inverted corrective wave on Friday, and the possibility of the SPX completing this wave between 1680 and 1687, both scenarios are at least equally likely, with perhaps a slight edge given to the first scenario.

There are a couple of reasons for this. First, there is a good possibility that this wave will complete within the 1680-1687 range. Second, if this wave does end there, the first support zone is setting up to be in the 1645 area. That would seem to be a pretty severe drop if the SPX were setting itself up for new highs. Also, many of the technicals are reaching overbought levels again.

As I said on Friday, the battleground is shaping up to be in the 1680-1687 range. If the SPX gets above 1687, I would be inclined to think that this market will continue higher. If the index gets into that 1683-1687 range, and then pulls back, it is likely that it is headed lower, most likely below 1560.

Shorter term, I am looking for the SPX to make one more move higher, to above 1683, and that should be followed by a pullback, as it would complete a sequence from 1627. Resistance is at 1685, with support at 1669, 1651, and then 1621.