Monday, September 22, 2014
First off, I apologize for the lack of an update on Friday. My family has been the target of one crisis after another for about two years straight (with the targets running the gamut of generations, from my father to my kids), and it's something of a miracle that I've been able to manage anything even approaching a consistent series of updates throughout this time. Maybe one day things will settle down. Or, maybe one day things will get much, much worse, and I'll look back on these unfortunate events as "the good times." Yikes. (One reason why happiness can only be found in the present, though, never the future!)
Anyway, today's update is going to let the charts do most of the talking.
Let's start with my favorite master index. Our special guest all this week, here from New York City, let's have a big Las Vegas welcome for the one, the only, the NYA!
(sound of crickets chirping)
Below is a slightly zoomed-in view, with some additional trend lines and support/resistance zones. As I see it, NYA's pattern suggests that bears need to keep pushing, or risk at least another few weeks of hibernation, since a breakout here would keep the market pointed up for the foreseeable future.
Let's take another look at some long-term charts. On Friday, SPX came within 1 point of my intermediate target from March 5, 2014:
INDU effectively reached its target zone as well, though I would have liked to see a bit bigger overthrow of the red trend line (as noted on 8/22), here again INDU's high was well-within the margin of error.
(continued, next page)
Posted by PretzelLogic at 3:20 AM
Wednesday, September 17, 2014
On Friday, I wrote that my "gut call" was for SPX to decline directly, but that an immediate decline would offer "above average odds for a buying op." By Sunday night, everyone thought I was nuts: ES futures gapped down big at the Globex open -- and if the cash market followed suit, it was toast. But despite that sea of red in the futures session, I nevertheless published the cash charts I had drawn over the weekend, and reiterated my stance that I felt the best fit for the pattern was for a rally to (at least) SPX 1997.
Needless to say, by Tuesday, my gut call from Friday didn't look so crazy anymore. Frankly, I was modestly surprised that I was able to triangulate any pattern at all from within the last month's chop zone, so you'll have to forgive me for that little bit of horn-tooting.
The question now, of course, is whether this rally presents the selling op I believed it would when I wrote Monday's update. The market is a dynamic mechanism, of course, so it's important that we assimilate new information as it becomes available. The one key piece of new information is that the Dow Jones Industrial Average Ordinary Mediocre Average (INDU-OMA) exceeded my rally target and made new all-time highs.
I studied the pattern in INDU last night, and after a while, I finally came to the firm conclusion that I should stop and walk away before I went insane. INDU's chart looks like it was drawn by M.C. Escher. Almost every pattern I could find not only violated rules and guidelines of Elliott Wave, but also violated the fundamental laws of physics. INDU's chart is an abomination, and I highly recommend we start a movement to burn all the INDU charts before this thing spreads to other markets.
I'm kidding of course. I found a few patterns that made sense, but they're so complicated to chart (and make understandable for public consumption) that by the time I labeled everything, it wouldn't matter, because the sun would have burned out by then, and no one would care about equities anymore.
It's interesting how often the market works its way into complex types of patterns heading into FOMC announcements, which makes sense. After all, the Fed is one of the main drivers of asset prices in what used to be known as our "free market" -- back in the day when bizarre and archaic concepts such as "productivity" and "supply and demand" impacted asset prices. The term "free market" has taken on a different meaning in recent years, and the Fed's motto since 2009 has been: "We put the FREE in Free Market."
Anyway, it's time to look at the charts, and we'll start with SPX. I am still leaning toward this being a complex flat, with some additional details in the annotations.
COMPQ failed to act as a canary for anything other than COMPQ, and with prices at current levels, doesn't do much to aid in additional clarity.
However, NYA again proved to be exceedingly helpful:
(Note typo: "botom" should read "bottom." A "botom" is not something you'd find in the market, but was instead a medieval weapon that was used to punish insolent serfs. Or it should have been, anyway.)
Big picture, not much has changed during this extended chop zone:
In conclusion, a bit more upside wouldn't be out of the question here, but I do continue to marginally prefer the idea that upside is limited at current levels, and that Friday's low will be broken reasonably soon. However, if bulls can sustain a breakout over the all-time high in SPX, then we'll have to give more weight to the idea that the chop zone was simply a consolidation period.
Do keep in mind that the market sometimes likes to head-fake near FOMC announcements, so stay very alert to reversals today. Trade safe.
Posted by PretzelLogic at 3:20 AM
Monday, September 15, 2014
I'm starting to feel like Haley Joel Osment in The Sixth Sense, except instead of whispering, "I see dead people," I find myself wanting to whisper, "I see expanded flats." But then, I was dropped on my head a lot as a child.
Speaking of drops, the decline off the all-time high has been a brutal, choppy grind lower, which has been chewing up traders on both sides. And, to make matters worse, the move has continually refused to clarify itself. However, I have a suggestion as to what it might be -- this was, in fact, the same suggestion I offered on Friday, though Friday's drop marginally exceeded my expectations.
My suggested pattern is, you guessed it (or you read Friday's update): An expanded flat.
But I think it's a better expanded flat than I originally anticipated. Why is it better? Well, because if the market rallies in the near future, then it may be a predictive expanded flat (standard caveats apply).
Let's take a look at SPX to see what I mean:
This isn't a clear-cut move by any means, though. So, since I need to live up to my nickname as "the hardest working man in showbiz" (or was that James Brown?), here's another possibility, shown via INDU. Keep in mind that INDU and SPX should generally both be watched during the session for clues, especially in a market this vague. I didn't detail the ending diagonal shown on INDU on the SPX chart, for example, but the pattern is valid for both indices.
NYA has now formed a five-wave decline, and the overall pattern is much less choppy than INDU or SPX. Note that it's also reached a theoretical support zone. Support, combined with the five-wave decline, means that it's not a bad bet to suspect we may see a bounce soon.
This may lend credence to my expanded flat thesis -- though, of course, the market always reserves the right to do whatever the heck it wants. Sometimes waves we label as "3" and "4" are just another 1 and 2. In the end, analysis and trading are matters of playing the odds -- and odds are just probabilities; never guarantees.
On the chart below, (5) may have completed Friday, but could run a bit lower without creating problems for that count.
NYA has effectively reached the 10,870 +/- target from September 10 (13 points on a 10,800 point index is well within the margin of error for most any pattern):
COMPQ currently has exactly 873 possible options, but might still make a good canary in this situation.
(Note: The following requires a working knowledge of the alphabet): Wave-e of a triangle has no rules except that it not exceed the low of wave-c. But I prefer to use the wave-a low in vague situations like this, because the wave we assume to be wave-e might actually be an ongoing part of wave-c, which means it can break the c label's low -- but normally wouldn't break the low of wave-a.
Big picture, the potential of an intermediate top still looms:
Finally, a reminder about what the nested third wave count looks like, lest we get complacent:
In conclusion, the market remains as clear as a politician's promises (vague, indecisive, unsubstantiated, confusing, annoying, anger-inducing, etc.). I'd love to see the expanded flat rally noted in the first SPX chart, as I think that is the best fit for the pattern on the 1-minute charts. Sometimes the 1-minute charts can be deceiving, though, so I'm not closed to the more immediately bearish options of a nested third wave, as I've been discussing over the past week. Bulls best hope seems to be for an ending diagonal, as noted on the first INDU chart. Trade safe.
Posted by PretzelLogic at 2:20 AM
Friday, September 12, 2014
This remains one of the more flummoxing moves of the past few years, as the market continues to grind sideways, chewing up everyone in its path. This is the type of action that chop zones are known for -- this is one of the reasons that, exactly a week ago, I began warning that it was dangerous to try and read too much into the action within this range.
Wednesday's update noted that sustained trade south of 1984 SPX would be bearish, but SPX has so far been unable to sustain any breaks of 1984 -- on Wednesday, it was only able to break that level by one point, for a few brief moments, and it was unable to print even one full 5-minute bar beneath 1984.
The options for the wave counts right now are still too numerous to list, so I'm publishing two charts in this update that will hopefully help narrow things down (somewhat) in real-time.
First is INDU:
The next chart shows a few of the near-term options for SPX, and some key levels. The expanded flat referenced in the top panel is shown in blue.
Beyond that, there's not much to add to the last week's-worth of updates (unfortunately). Hopefully next week will bring a clearer market. Trade safe.
Posted by PretzelLogic at 3:31 AM
Wednesday, September 10, 2014
In the last update, I talked about how it was tempting to stick a "4" label at 1990.10, but that chop zone patterns were not to be trusted, and there really was no solid evidence to assume wave 4 had ended at that level. The market has since gone on to invalidate 1990.10 as the bottom of a fourth wave.
The pattern has continued to morph its way into increasing levels of complexity, and, as of this exact moment, anyway, there are nearly infinite ways to label the wave structure. A detailed examination of the charts reveals that I could easily draw up at least 20 different wave counts of the same existing structure -- and that means there's still no room for arrogance or overconfidence about the near-term. We're simply going to need to see how the market reacts over the next couple sessions to begin narrowing down the options.
Despite the plethora of near-term options, as previously noted, I think the break of 1990 has to be viewed as favoring the bears -- either immediately or after some more backing and filling.
I've drawn up a chart of the two most obvious wave counts (and one variation therein), but it's not a bad idea to continue "expecting the unexpected" until there's more clarity.
The 5-minute chart reveals my thought process in detail, given the available evidence so far. This chart only shows the bear count and its first variation.
NYA turned out to be the canary (again!) on Monday, as it made a new low while SPX feigned a corrective decline. The potential falling wedge in red is either a terminal pattern or the precursor to a steep drop -- we should know fairly directly. Due to the nested third wave potential, I would not try to step in front of any pending declines until there are solid signs of a basing pattern.
In conclusion, we probably have to view SPX's failure at 1990 as bearish until proven otherwise -- although, as noted, this break does not preclude a near-term rally. Trade safe.
Posted by PretzelLogic at 3:10 AM
Monday, September 8, 2014
And here we are again. Last update noted that: "Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet."
I couldn't have said it better myself. (Wait... what?)
I think we're still there. Believe me, I'm just as tempted as the next Elliottician to stick a "4" label at 1990.10 SPX and go back to watching TV. And maybe that's exactly where it should go -- but all the market has done is range-race through the chop zone, and until we sustain trade outside the range, there are still options for more chop.
Let's start with the obvious counts:
And now for something completely different (with a nod to Monty Python):
Bulls probably want to see SPX follow a path similar to the one laid out in red on the first chart. In other words, a bit more coiling, THEN a break of the high. Bears want to see the market drop straight down below 1990.10 without breaking 2011, as that would imply a third wave decline, and put the whole wacky extended fifth wave retrace thing I talked about last month back on the table.
INDU doesn't quite jive with SPX -- and there are implications here, which I'll discuss in more detail as it becomes appropriate.
Also, today is Monday the 8th, and you know what that means! It's been a long-standing tradition that on every Monday that falls on the 8th of a month (if that month is September), we update the long-term charts! I'm sure readers are tuning in from all over, in anticipation of this big event. So, let's take our traditional "Monday the 8th of September" look at the long-term charts!
In conclusion, chop zones can mess with our heads -- so we should stay alert to that fact. Human thought moves faster than just about anything in the physical world, so our natural tendency is to think the market should move as fast as our imaginations do. But it doesn't. While it is entirely possible wave 4 bottomed at 1990.10, we really have no guarantees that it won't become more complex. We also have no guarantees that 1990 was the bottom of a fourth wave; and should probably not completely write-off the bear options just yet.
The bottom line here is that traders should stay on their toes and check their assumptions at the door as long as the market remains range bound. Trade safe.
Posted by PretzelLogic at 3:28 AM
Friday, September 5, 2014
Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet. Let's start off with the 2-minute SPX chart to illustrate why:
This is a market that's still within a chop zone, and chop zone patterns are unreliable -- and frequently deceptive. The best trade for chop zones is usually to trade the edges, which works until it doesn't. Due to the unreliability of chop zone patterns, I'm very hesitant to try and draw a definitive conclusion while the market's still inside that zone. My first inclination on the chart above is actually to view the bullish count as more reasonable, but that flies in the face of yesterday's daily candle -- and as noted, one can't trust chop zone patterns.
Let's look at the big picture, though, for why bears might have something to cheer about. COMPQ peaked where I had blue V drawn, and now has enough waves to mark a completed impulse. That, by itself, isn't the whole story, though, as we do not yet have confirmation of a trend reversal.
NYA finally eked out a new high, and also has enough squiggles to be counted as complete.
The bottom line here is that, given the incredible mess that is the near-term SPX chart, it's simply too early to make a definitive intermediate call. We have a couple levels to watch to start ruling out certain patterns, and the first step toward more clarity is for SPX to clear the chop zone. Trade safe.
Bonus Chart, posted half an hour after the open: Much as I'd like to ignore this potential or pretend it doesn't exist, it does exist, so I feel obligated to share it. Until bears break the key overlap, this remains wholly viable, and it's certainly something to be aware of.
Posted by PretzelLogic at 3:31 AM