Wednesday's Market 05/07/2014

The SPX responded to yesterday’s weakness with a gap up opening, which took the index back to 1876.01 within the first few minutes of trading. A sharp reversal followed, and the SPX soon found itself in negative territory for the day. This downturn took the index to 1859.79, which turned out to be the low of the day. The SPX started to move higher once again, hitting 1869.12 before taking a pause. After pulling back to 1865.29 the index then continued higher to 1876.46. A choppy pullback followed, this time taking the SPX to 1868.43 where it reversed again, and then moved higher into the close with only one four point pullback along the way.

Continuing the count from the recent 1891.33 high, I have Wave 2 completing on Monday at 1885.51. Wave 1 of 3 then completed yesterday at 1876.03, and what looks like Wave 2 of 3 at 1881.27. Wave 3 of 3 then completed at yesterday’s low of 1867.77. That would make today’s opening move higher to 1876.01 Wave 4 of 3, and the ensuing drop Wave 5 of 3, which I have completing at 1861.10. This now completes three waves from 1891.33.

From 1861.10, a 5 wave sequence can be counted as 1869.12-1868.43-1875.37-1871.75-1878.83. The second wave was an inverted corrective wave which completed as 1865.29-1875.52-1869.61-1873.99-1868.43. This would now seem to complete four waves from 1891.33, with only the fifth wave down to come.

With four waves now completed, the fifth wave should complete between 1844 and 1830, with an optimal target of 1838. If the SPX does move higher, resistance is between 1891 and 1902. After 1902 the next resistance would be 1923.

Tuesday's Market 05/06/2014

Although yesterday’s market action was similar to the previous Monday’s, with both featuring an early sell-off followed by a strong recovery, the next day’s reaction was the exact opposite. Whereas last week the strong Monday afternoon recovery carried over into Tuesday, and set the stage for a week- long rally, yesterday afternoon’s rally was met by a sharp opening sell-off.

The SPX dropped to 1875.91 within the first fifteen minutes of trading, and after a short period of choppiness, rallied back to 1881.27. That rally was short-lived, as the index dropped to 1874.88, bounced back to 1878.78, and then fell throughout the day until it reached 1868.19. A small bounce took the SPX to 1872.37, but again was followed by a drop into the close to 1867.77.

Today’s action would seem to confirm yesterday’s count of an inverted corrective wave completing at 1885.51. Rather than continuing on to complete the last three waves from the 1891.33 high, the SPX appears to be setting itself up for a further decline. If my count for this decline is correct, the index has now formed a series nested waves from that high. The highest degree first wave completed at 1880.58, which was followed by the inverted corrective wave to 1885.51. The next degree first wave completed today at 1876.03 and the third degree first wave at 1874.88. This set-up would indicate a sharp decline to follow. I am still looking for support at 1849, and then 1775.

If my short term count is wrong, there may be support from just below current levels down to 1864. A small pullback into that range, followed by a bounce above 1872.37 could lead to a strong rally, but for now it appears that this decline will continue.

Monday's Market 05/05/2014

Today was in some respects similar to last Monday. Last Monday the SPX opened lower at the open, and then found a bottom from which it staged a strong rally. Today was similar, although the selling did not last quite as long before finding a bottom. After a gap down opening, the SPX fell sharply in the opening minutes, dropping to 1866.77. From there the index rallied, reaching 1881.86, and closing the opening gap in slightly more than an hour. A period of choppy trading ensued through the middle of the day, with the SPX putting in a low at 1879.46. The rally continued from there, as the index hit 1885.51, before fading slightly into the close.

Counting from Friday’s 1891.33 top, the SPX completed a 5 wave sequence at 1880.58. Another sequence higher completed at 1885.98, and was followed by a sequence lower which ended with today’s weak opening. The rally so far has formed three waves, 1881.86-1879.46-1885.51. The first 1880.58 low can be counted as a wave 1, and the move from that point, 1885.98-1866.77-1881.86-1879.46-1885.51 counts as an inverted corrective wave, or a wave 2. This implies another move lower for the SPX, at least in the very near term.

For this short term count to remain valid the SPX would need to remain below 1886. Support would be at 1849, and then 1775. If the SPX does continue higher, there will be a small band of resistance between 1893 and 1896. A move above this resistance would likely mean one of the more bullish scenarios I outlined yesterday is in play. As of now all three scenarios remain valid.