Is 13 a lucky number?   what about 1300? ... or 1313?  Well we should learn about this fairly soon.

Combine a week with economic data like consumer confidence on Tuesday , New home sales , crude inventories and FOMC rate decision on Wednesday , initial claims and durable orders on Thursday , only to close with GDP and Michigan sentiment on Friday and we may just see enough sparks to test these levels. .... but wait what about Monday??    No economic news on Monday and this may fit the dip buyers just right.  We'll see why in a few minutes but first let's look at the monthly chart.

So far the January  candle is green and topped at 1296.06. I have been watching 2 critical levels : the 1313.15 or high of the summer of 2008; and 1302 the 100% fibonacci extension of the first wave from the end of the fourth. These 2 levels are about to provide resistance to a continued move up if anything because the bears and many traders are watching them.

A quick look at the indicators tells us we are reaching overbought levels and that the market may be heavy here. My modified stochastic indicator (8,4,4) still shows the %D line lagging the %K line in overbought territory and until it catches up with it I will not expect any major retracement. My modified MACD (5,21,9) is at 113 still shy of the May 2010 where it was at 127. One characteristic of the 5th wave is that the MACD typically shows a divergence with the price action. We are still under these premises.

Last week was the first loosing week in the past 8 weeks and this brings much speculation as to whether the market has reached a top. We concluded with options expirations and this is no surprise that after 120 points advance since December we took a bit of a breather.  The current count is still on track for a minor 5th wave to complete and therefore also completing the larger 5th form the March 2009 low rally. As seen on the monthly chart the 1313 level from the 2008 summer will offer resistance.

Continuing last week review of the stochastic indicator in relation to the elliott waves, we should expect the 5th wave to complete soon. The stochastic has a bearish cross in the high overbought territory and is signaling that the end of this advance may be soon.

The greatest point of interest on the Daily chart is the rising wedge which has been developing since the completion of the larger wave 4 in December. It looks like Goldman Sachs tried the spoil the party on Wednesday dragging the market down and the likes of APPLE  but we recovered with a bounce off the 20 day ema. The market shriveled to pinning action on Option Expiration Friday holding above the 8 ema.  The upper trend line of this rising wedge seems to act as a magnet and it is to be noted its convergence with the 1300 and 1313 levels.

The indicators are pulling back from the overbought levels.  Both the MACD and Stochastic are showing bearish crosses and this is getting the bears excited. I am all but convinced it may be a bit ealry to start shorting this market and i will refrain to do so until we reach at least the 1313 level ... OR ... break below 1243 (the 50 day ema) for now.  It only takes a look at the 60 minute chart to understand why.

In this Martin Luther king holiday shortened past week, we made a high at 1296 which completed our count of the third wave of 3:5:5.  Wednesday started the 4th wave retracement and I cannot see a full retracement having taken place yet. the 4th wave is a typical "abc" which is not yet apparent on the chart. I can see the "a" down and the "b" up but not the "c" down yet to complete 4. A typical "abc" is one where the "c" leg is equal is range to the "a" leg.  This would occur at 1266.73 and the line in the sand to avoid nullifying this count is at 1259.12 where a wave 1 rule violation would occur. The absence of economic data on Monday may well give this pattern the completion it warrants. A double bottom at Thursday's low (1271.26) is not to be ruled out either.

The indicators seem to confirm the pattern as well. They are all in a down trend from overbought levels. The stochastic made a lower high and has a bearish cross, the RSI is below 50, the MACD printed lower histogram bars and is about to have a bearish cross of its own. The Williams %R also made a a lower high.  These are all indications that the "abc" pattern is not complete.

In summary, I believe we will see the dip buyers coming back to the market once we complete the "abc" sometimes Monday or even Tuesday morning.  I will look for equities which may be bottoming out at the same time and look for long position to match the broader market.

I will be travelling the next week and may not be able to provide opinions and update in the chat room.