Friday, May 29, 2020

SPX and COMPQ: Caveat Emptor

Last update, we discussed the two leading options for SPX, both of which were near-term bullish (as shown by the chart labels), but one of which then turns bearish for a time.  Yesterday, we rallied exactly up to the first label and reversed:

Note that even if we're in the Red (1)/(2) count, that doesn't mean we can't do a little bit more sideways/up before completing Red (1), but it's definitely worth watching.

Last update we also discussed some of the pressures that seemed to be leading us toward the completion of a Supercycle top, and the riots we've seen since may be an early glimpse of the powder keg that's brewing beneath the surface.  While the horrifying death of George Floyd is ostensibly the spark that lit the fuse for this dynamite, that was not, I believe, the dynamite itself.  The dynamite itself has been lying dormant for some time, and future situations will likely ignite it further.

But I don't have enough time to get into more detail on that right now, so suffice to say this is perhaps a harbinger of things to come.

Near-term, we have some trend lines to watch:

Also wanted to point out the potential megaphone in COMPQ:

In conclusion, SPX rallied up to the (first zone) of the Red (1) inflection and turned.  Because the inflection stretches a bit beyond that label, bulls should stay on their toes here, even if we run a little higher, and even moreso if we sustain an immediate breakdown at the black trend line.  Trade safe.

Wednesday, May 27, 2020

SPX Update, and Some Random Thoughts

Recently, I had an interesting discussion with an investor.  During this discussion, he asked my opinion of the intermediate future (4 years out and beyond).  I told him the same thing I've told my readers:  I suspect the Federal Reserve and the government have thrown enough money at the problem (and that we still have enough goodwill remaining) to keep the party going for a few more years.  But that after that, things could get very ugly.

He's a permabull, so he didn't much like that and mumbled a few things in reply, then concluded, defiantly, with, "But I CHOOSE to be hopeful."

And I thought:  Well, that really sums up the crux of the issue for traders as a whole, doesn't it?  Some traders "choose to be hopeful."  Others "choose to be bearish" (or, they might say, "realistic").  But in the end, the market doesn't give a damn what we "choose" to believe, on either end of that scale, or anywhere in between.  It's going to do what it's going to do.

So, for me, my philosophy begins and ends with: "I choose to try to be on the right side of the trade."

And I think a big part of being successful in that endeavor is being willing to push ourselves out of our natural comfort zones.  Some of us may be optimistic (or pessimistic) by nature -- but we simply must have the mental discipline to not allow our natural inclinations to hold too much sway over our vision.

I touched on this somewhat in a piece I published on March 23 (the bottom came later in that very session, as it turned out):

I think that part of what makes a successful speculator is the ability to find balance. The nature of the herd is to overreact in BOTH directions. The nature of the successful speculator must thus be the opposite: To seek reasons for caution when others are fearless and -- on the flip side -- to seek reasons for hope when others are hopeless. 


The majority of people react to their own thoughts as if they were "real," the way, say, a tree or a rock is real. They have a thought, and then they simply accept that thought as true. But thoughts are not real. And they are often not true. So, to be ahead of the herd, we must be our own harshest skeptics. We cannot afford to be overwhelmed with "the emotion of the moment" by taking even our own thoughts at face value, but must instead seek to chip away at our own ideas -- to find out if those ideas are solid, if they are merely possible, or if they are completely baseless. 

We turned bearish near the high -- then began looking for a broad market crash almost immediately thereafter, while most people were still thinking "short-lived correction." NOW, however, many people have begun thinking this will never end. And surely that means we should at least start looking for hope. 

Consider this case: What if a cure or vaccine is announced directly? If that occurs, then the economy will not only return to normal, but it will return to normal along with trillions of dollars in Fed money to fuel a blistering rally. 

So the economy will return to "normal," but on steroids.

Of course, as mentioned, that piece really couldn't have been any more timely (and in the very next update, I noted that all downside targets had finally been captured and that, for the first time since the crash began, it was at least possible for the bottom to be in -- and that we should not turn bearish again unless the long-term uptrend in SPX failed, which it never did).

But the point is, challenging our emotions and our natural inclinations is what's going to keep us from getting run over in BOTH directions.  When it comes to my personal life, I might "choose" to be hopeful about a given situation, and that's probably a good thing -- but when it comes to the market and the economy, I have no control over those, so "choosing" to be hopeful (or hopeless) seems to me to be complete folly.

I may or may not always be successful in the following endeavor, but I "choose" only to try to see things as they really are.  For better or for worse.

Which brings me to a related point:  I see us glorifying a certain mode of thinking in society that goes directly against the above concept.  Or, it may be more correct to call it a certain mode of feeling.  We're basically told to feel outrage and anger over various (ever changing) situations du jour, typically by the media and/or by politicians.  If we try to "be the voice of reason" and bring a balanced view to such situations, we are then told that we are "cold-hearted" or (worse) often assumed to be taking the "opposite side."

Let me give a hypothetical example of what I mean before continuing.  Let's say someone is accused of a crime and being essentially tried in the media.  More and more, we are expected by our peers to simply condemn that person, as if the actual trial had already been held.  If we say something along the lines of:  "Well, maybe we should wait to see the evidence," then we are often assumed to be taking the "side" of the accused, when in actuality, we're just not taking EITHER side.

And I bring that up, not for that specific example, but because I believe it's symptomatic of where society is today:  We are actively discouraged from even attempting an unbiased view of things.

Try it, for example, on Twitter.  Find any random accused person who's trending and attempt, not even to "defend" them, but to simply suggest that maybe we should withhold judgment until there's more evidence.  Watch how fast you get flamed and grouped-in with whatever hideous thing that person is accused of.  Watch the hate pour in.

Then try the opposite:  Jump on the bandwagon and bash the person with all the faux outrage you can muster.  And then watch the "likes" and retweets pour in.

And I bring up this example because, as I said, it is symptomatic of an underlying societal condition.  It tells us that society, as a broad-based whole, does not even value attempts at reason and impartiality.  What society as a whole values is raw emotionality in place of reason.  We know this because that's exactly the behavior it rewards.

And we get more of that which we reward.  While we get less of that which we punish (in this case, we are punishing reason itself).

So we're building an awful beast here.  And creating a generation that overvalues its own raw emotions while undervaluing both rational thought and objective reality.

And I think all of that ties in to my larger Supercycle.  We're rotting from the inside out.  It just takes time to become apparent.  But, in time, the outward world will increasingly mirror our inner world.

Of course, as I've discussed many times previously, I don't think we're there yet... but I wanted to share a few more of my observations as to some of the forces that are taking us there.  Because, when it comes, I do hope we can correctly diagnose how we got there and rebuild from a more stable foundation.

Anyway, I'm out of time, so let's get to the charts.

First up, the near term SPX chart, which has proven to be valuable:

Next up, the intermediate term SPX... here, we're at a bit of a crossroads.  The blue count is super-bullish pretty much directly.  The red count could see us top anywhere from current levels up toward 3130ish.

In conclusion, the market remains in an intermediate inflection zone, but the first thing bears would need to see is an impulsive decline.  Trade safe.

Friday, May 22, 2020

SPX and NYA: No Material Change

Last update noted that the market had reached an inflection zone, and it's gone sideways since then, so there's no real change, but a couple zones to watch.

SPX reacted to two of the lines on Wednesday's chart:

NYA moved sideways/up, but it's still below the Red 1 high.

Beyond that, not much to add since Wednesday's update.  The first zone bears need to claim and hold is clearly ~2937ish.  If they can do that, then they probably get a trip to the blue line.  If they can then sustain a breakdown of ~2900, they probably get a trip to the black line.  First things first, though, and none of that happens if they can't sustain a breakdown of the first support zone.  Trade safe.

Wednesday, May 20, 2020

SPX and NYA: Inflection Zone

Last Friday noted that first downside targets had been captured, and SPX (at least) has since rallied up to a new high.  NYA has not yet reached a new high, but did rally up right to the "or 2/B?" label that I'd placed on the chart.  And you know what that means.

That means we've reached an inflection zone.

We'll start with SPX (because I think I wrote a more descriptive annotation for SPX), and we'll return to NYA in a moment.

(Note chart typo:  "2988-3000" should be "2968-3000"-- 2968 being this week's high)

So we can see SPX has three up from 2766.  NYA has three up from 10,551.  Both can run a little bit higher and remain within the inflection zone, but if the market want to opt for the complex flat, they do not need to run any higher.

In conclusion, virtually every market I looked at last night appears to be three waves up from its most recent swing low.  This means that:

1.  If they are going to form impulse waves, they still need AT LEAST one more decent new high to complete a fifth wave (SPX would probably at least want to tag the zone near the solid blue line overhead).
2.  If they are going to form complex 3-3-5 flats, then they could stall fairly directly and head back below last week's low.

Thus, this is an inflection zone -- but a rather unpredictable one, as there's just no way for anyone to know if the market wants to form a complex flat until it gives some signals of such.  The first signal to watch on both markets would be a sustained breakdown of their black uptrend lines.  Trade safe.

Monday, May 18, 2020

SPX and NYA: No Material Change

Last update noted that the downside targets had been captured, but that there was a slim chance the low was a b-wave.  Today's open will run close to the "or 2/B?" on the chart below.  The zone near the prior 2/B high (plus or minus) will be the inflection.  (Note that the fact that the market has/is rallying toward the "or 2/B?" does not add any confidence to that option, because it would rally that far if the ABC were to be complete at last week's low.)

SPX continues to rally from its three down (ABC) inflection as well:

In conclusion, no material change.  Potential three down identified last week seems to be holding.  Bears will have another shot as we approach prior highs, but if they can't get anything done there, then they may need to go back into "watch and wait" mode while bulls run with the ball.  Trade safe.

Friday, May 15, 2020

SPX and NYA: First Downside Targets Captured

Since last update, NYA gave a perfect tag of its red trend line (the first downside target):

SPX first downside target was the red dashed line, which it captured and exceeded:

The question now is whether yesterday's low is "it," and it could be... but I would say it's at least 50/50 on the potential of that low being a b-wave (meaning it would need to be tested/broken).  We'll be watching the first key levels as noted above for additional clues to hopefully help add confidence one way or the other (I'm very slightly leaning toward it being a b-wave low, but, as noted, it's close to being a toss up).  Trade safe.

Wednesday, May 13, 2020

SPX and NYA: Cloudy with a Chance of Powell

Last update noted that:

I can already say that if we gap lower this morning, Friday's high is going to at least have potential to be a b-wave high (which would mean it's an unresolved high and would need to be exceeded).

And that's exactly what happened.  After gapping lower, then rallying back up to break the presumed B-wave high, SPX reversed lower again.  It will be testing its first support zone today, near 2850.  Bears need to sustain a breakdown there (whipsaws (brief breaks of key levels that reverse directly) are often near-term bullish).  If they can maintain a breakdown, that would likely take them to test the lower red line next.  If they can't, then bulls might use that zone as a springboard.

(note: typo... "trae" = "trade")

NYA looks a little more straightforward than SPX.  At first glance, it looks like an ABC rally... but I'm not entirely able to rule out that rally as an impulse (hence the black bull count) and bears would thus like to see a sustained break of 10,900.

In conclusion, the jury is still out on where the near-term count sits, so I've shown the two competing options via NYA.  Today will hopefully answer which option is more likely.  Trade safe.

Monday, May 11, 2020

SPX Update: Scrapped!

I wrote a really lengthy piece this weekend, but it was a bit dark... so I scrapped it, because who needs dark in these bright times?  I mean, I didn't "scrap" it as in delete it permanently, I still have it and maybe I'll publish it one of these days.  But not today.

So instead we're just going to stay with the "short and sweet" theme of the past couple updates and look at one near-term chart:

In conclusion, there still isn't much to add, as the market remains in a near-term no-man's-land for the moment.  We can see the first zones bears would need to claim to get anything going, but I can already say that if we gap lower this morning, Friday's high is going to at least have potential to be a b-wave high (which would mean it's an unresolved high and would need to be exceeded).  To help rule that out, we would need to see the pattern develop into more than a single impulsive decline, or see bears break 2876ish.  Trade safe.