Friday, June 23, 2017

RUT, NDX, BKX, Oil: "Trade What You See"

Last update talked about how INDU had formed a near-term topping pattern, and that pattern thus made me inclined to lean bearish on all major indices... although for NDX, I wrote:

NDX is interesting -- and here, NDX would definitely look a bit better with another push up to 5800+, either immediately, or after another down/up move.

INDU has indeed continued lower since then, and it is likely poised to head lower still.  As for NDX, the reason I wrote the above on Wednesday was because NDX didn't look quite complete for a five wave rally (the chart showed/shows NDX in a c-wave, and c-waves are five-wave moves), but instead looked more like three waves.  Since then, NDX has added another wave up and rallied to the suggested 5800+ target (5802 to be exact), which fits the pattern for a C-wave -- and more importantly, allows such a wave to be complete in a clean manner (this is important for future charting down the road).  This of course doesn't mean NDX can't rally a bit higher fairly directly, but there are now at least enough waves in place for a completed, and clean, correction to red "bear: A/1":

BKX has been in a near-term downtrend after getting that final push higher I'd hoped for, and stalled repeatedly at the noted resistance zone.  BKX has actually dropped about 3% already since then -- so anyone who sold the red resistance zone might consider tightly-protecting at least some percentage of those profits, just in case everything goes haywire bullish out of nowhere (not that THAT has ever happened in this market).

Crude is unchanged -- and I'm mainly publishing this chart again simply because after I published the last one, I noticed that StockCharts had messed up a few of my labels (unbeknownst to me), so I simply wanted to fix them:

And finally, RUT broke 1399, which adds at least a bit more confidence to the bear case:

In conclusion, as I've been discussing recently, a number of markets appeared to have been aligning -- and now finally appear to be aligned in a way that makes a bearish move quite possible over the coming sessions.  If RUT, BKX, and NDX have all topped (or nearly so), then there is in fact potential for us to be on the cusp of a fairly significant downdraft.  So as long as bulls don't pull a surprise breakout from these patterns, it makes the most sense to continue to lean bearish and simply "trade what you see" (as they say).  Trade safe.

Wednesday, June 21, 2017

RUT, BKX, NDX, Crude Oil: Bears Attack Oil

Nearly six years ago, I wrote that I believed the odds were 90% that the top was in for crude oil, and that it was headed to 25 in the coming years.  People thought I was nuts, but I remained bearish until January 2016, when I warned that oil was likely to find a bottom near the 25 target zone and bounce all the way back to 50-55.  This was about the time that everyone else was finally growing very bearish, but oil indeed bottomed at 26, and then bounced up to 51.67.

In mid-2016, I noted that 51.67 could be the top of the predicted fourth wave, but that it was reasonable to consider that a fourth wave at such a large degree might well take up more time -- so I placed a 2nd target for (iv) near 55, with a time target (which I don't normally do) in the December 2016-January 2017 zone.

Well.  Oil is doing its best to make it look like that (iv) label may have been placed correctly.  Here's the updated oil chart:

Though it's a little early to entirely rule out all bull options, bears have two things going for them:

1.  The new multi-month low breaks the potential of an abc off the high.
2.  The rally from 26 counts well enough as an ABC with a c-wave ending diagonal, and that pattern meets the requirements for a complete wave (iv).

Thus, we probably have to presume that the (iv) label is correct, unless/until crude gives us a sign that something else is going on.

Equities had a less-than-perfect day yesterday.  I would like to see RUT claim 1399 for some bearish confirmation.

BKX got another wave up as I was hoping, but there's no guarantee that wave is complete yet -- ideally, it's complete or close to it, but I can't entirely rule out another trip into the red resistance zone yet.

NDX is interesting -- and here, NDX would definitely look a bit better with another push up to 5800+, either immediately, or after another down/up move.  The tricky part is that there are enough squiggles for ALL OF Bear B/2 to be complete, if the micro fourth and fifth waves were compressed.  In other words, you can find the waves there if you look closely -- but they didn't unfold in the "usual" way, so we have to allow a little wiggle room. 

Either way, right now this pattern fits the bigger picture as a flat Bear B/2 correction, so using only NDX's CURRENT appearance (which can always blow up tomorrow, of course) as a guide, there may be another large down leg still pending.

Astute readers will notice that I didn't publish an SPX chart today, and that's because SPX is chartable only in a speculative way at this exact moment.  There are at least 3 viable patterns visible there, but no clear hands-down victor -- so I don't want to chart the options and encourage people to ignore the ones they don't "like" and merely trade their bias.  Thus I'll wait until it's a bit more clear.

In conclusion, crude's new low today hints that perhaps ALL OF the big (IV) is indeed complete.  Equities are in a position where bears can take the wheel if they're so inclined, but no indices have given bearish confirmations just yet.  That said, INDU does look very toppy on a near-term basis, so unless/until bulls can reclaim the ATH there, I'm inclined to lean bearish on even the major indices, at least for the near-term.  Trade safe.

Monday, June 19, 2017

RUT, BKX, SPX: "Seems Unlikely"

Last update discussed the potential that RUT has formed an ending diagonal terminal pattern, and we'll stick with that unless and until RUT invalidates that pattern:

RUT and SPX are (obviously) very different indices -- and SPX has yet to provide any bearish confirmation within its pattern, so it's entirely possible SPX will make another ATH.  Bears would love to see the prior ATH hold, of course.  If we rally today, then the zone around the ATH will be the next test for bulls.

Finally, I'd actually prefer to see BKX head at least a little bit higher, to give this pattern a cleaner resolution:

In conclusion, I'm default bearish on RUT, because I have a hard time wrapping my head around a target north of 45 million, even though I made that target up purely for humorous hyperbole purposes.  In reality, it's unlikely that RUT will exceed 40 million (okay, I'm still running with it!  Make it stop.).  Seriously, though, if that pattern is not an ending diagonal but is instead a bull nest, it is QUITE bullish (maybe not 45 million bullish, but pretty bullish nonetheless) and still hard to wrap my head around.  There have been a couple times since 2009 that I've been surprised by the market in such a way, but that type of surprise hasn't happened since maybe 2011.  So I can't entirely rule out the mega-bull pattern simply based on the grounds of "seems unlikely," as I have been surprised by this bull market a couple times before.  But I can still say:  "Seems unlikely."

Either way, do keep in mind my old aphorism:  "Tops take time."  Trade safe.

Friday, June 16, 2017

SPX and RUT: A Bit More Hope for Bears?

I've been staring at the RUT chart on and off for the past few months, and a couple months ago, I suggested the possibility of an ending diagonal -- but the pattern hasn't quite shaken out properly for the version of the diagonal that I first proposed.  The key issue with this pattern is that it seems to be a series of 3-wave rallies, which is proper for a diagonal, and last night it dawned on me that there's another way to look at this structure that fits the rules for an ending diagonal terminal pattern (below):

The nice thing about this structure is that it also provides an invalidation level at 1442 -- sustained trade north of that level would at least provide the option of a strong rally.  Frankly, that's one of the reasons I suspect this is a diagonal -- because if this is a bull warm-up pattern, then it would be outrageously bullish, and I have a hard time seeing that type of moon-shot from the market's current position. 

This is somewhat akin to the way I felt back in 2015 shortly before the flash-crash -- when many technicians were suggesting a nested third wave rally was about to launch to the moon, but I was calling a top.  We're in a similar position now.

If we compare the RUT pattern above with the preferred count I've been publishing in BKX, then we may have two markets well-aligned for a bearish move:

In conclusion, my instinct for a while has been that the market is undergoing a topping process, and with this fresh look at RUT, there finally seems to be some confirmation from the charts.  If RUT breaks out solidly over 1442, then something more bullish may be afoot, but until then, I will continue to lean bearish.  Trade safe.

Wednesday, June 14, 2017

SPX Update

Last update warned bears not to get too excited, and specifically warned that the (then-current) prices represented a bad bet for shorts.  Hopefully that saved bears some money, because we've since rallied back almost to the all-time high in SPX -- and some other indices even exceeding their previous highs.

Long-time readers know that occasionally there are times that I feel a pattern is so incredibly unclear as to not even warrant a prediction -- and I would have to say that this is one such time.  A few weeks ago, I mentioned that quite a few markets were in apparent contradiction, and this theme has only continued and intensified.  As a result, the intermediate picture has become increasingly more muddy.  Some markets look like they may even be on the verge of a major bullish breakout, while others look like they could conceivably be completing terminal patterns (some of which would still require additional new highs). 

Because there is nothing approaching a consistent theme across markets, I don't feel like anyone's in a position to say with much certainty which side will emerge victorious.  The amazing thing about trading and charting is that while markets can look like total chaos at times, sometimes things will clarify as quickly as a session or two later, so all I can really advise is patience. 

Just one chart today, because there just isn't anything new worth discussing today.

In conclusion, the market remains in something of a no-man's-land, so the only thing I can advise (in good conscience) at the moment is patience -- though, of course, if you're the daring type, small spec trades with good stops are always an option as well.  Trade safe.

Monday, June 12, 2017

SPX, NDX, BKX: And They Said He Was Crazy

On Thursday, I noted that SPX was in an inflection zone where (5) could complete, and while it pulled a nice (and brief) head-fake over 2441ish, it then reversed immediately into a fast decline.  NDX, for which I provided two inflection points on June 1 (the second price point I had noted turned out to be dead-on), was even more dramatic. 

So... normally at this is the point in the game I'd do a little horn-tooting... and I guess I can be proud of the contrarian NDX call, directly into the teeth of a strong rally (some folks even commented that I was "far off base" on June 1 when I posted this chart -- probably new readers) -- yet it's hard for me to get too excited here, because the picture remains quite fractured and complicated.  To illustrate some reasons why this is so, let's start with the NDX chart, and I'll have some additional discussion afterwards:

So, all-in-all, a pretty decent call on June 1, but so what?  Where do we go from here?  Well, the bull count heads to 6300-6400 next.  The bear count could head to 5350ish or beyond.  The problem is, there's no clear victor for this pattern.  I was expecting a correction when 5 completed, and indeed we got one -- but that correction was so sharp, deep, and fast that it's entirely possible it's already over.

Thus the problem is:  How actionable is the current market?  And I'd have to say:  Not very.  To analogize this point, I posted a bit in the forum over the weekend, which I'll reprint here (I have often compared trading to poker, which I used to play quite a lot back in the day -- and while I'm no Doyle Brunson, I virtually always finished in the top 3% in the tourneys I entered):

You know, it has occurred to me that there is another parallel between poker and trading:

In poker, certain hands CAN win, but are very difficult to play. For example, 7-8 suited can win with flush possibilities, but it's hard to play because you could easily be against a higher flush (ace-high, or even 10-high, would beat you). These hands aren't too big a deal in limit games, because if you bet your flush and get raised, then you just check and call down the river and you only lose one (or at worst a couple) more bets if you're beaten.

But in pot-limit or no-limit games, then you have to be awfully sure of your opponents' hands (and/or your opponents) to stay in that hand until the showdown. And that's where your modest hand CAN win, but becomes very difficult to play. Sometimes it's best to muck a potential winning hand, simply because it's not worth losing your whole stack just to learn you had the 2nd best hand.

And that's how trading is too. You can win by trading certain things, but without clear stop levels and/or clear patterns, sometimes it's best to just sit it out and wait for a better hand. I mention this, because in a way, this NDX call (from June 1) was like that. Sure, the 2nd "5?" label was spot-on -- but this was an awful hard pattern to trade with anything but a few bucks in spec money.

Said another way: In both poker and trading, just because you COULD win, that doesn't always mean you should try to -- at least, not with high stakes. Small bets (limit games/small spec positions) are sometimes appropriate.

And that's where we are now.  Due to the b-wave potential at the high, there's no clear bearish call from here.  The bear call was to take a stab back at the second "5?" when we hit that, but even then, there was no warm-up decline (to provide a clear stop level) with a retrace to then short; NDX just dropped like a rock and never looked back.  Because of b-wave potential, it's possible the low is already in.  Yet because of the flash-crash nature, it's difficult to say that for sure, either -- so let's look at some other charts, and see if we can find something that gives us clearer markers.

Indeed, we can find one such marker in SPX, and it appears to be the 2398 (ish) level:

Then there's BKX, which has sometimes been a wonderful leader -- but lately it's been trading with almost zero correlation to anything else (SPX, reality, etc.).  Nevertheless, BKX has followed the path I outlined on May 24 pretty darn well, even though it's taken a little longer than originally shown (I've often warned that I don't do "time" projections, only price projections):

In conclusion, although it's tempting for bears to get super-excited now, the market's true intentions aren't actually clear yet.  The fact that SPX/NDX both turned from their inflection zones certainly gives bears some hope, but that's the extent of it.  Sometimes markets will simply react to inflection zones, and all it shows you is that you accurately identified the inflection zone in advance.  It doesn't necessarily mean that the market will continue its reversal from that zone, though. 

An inflection zone is a decision point for the market -- in this case, it "knew" it would have to keep rallying above that zone, and maybe it wasn't quite ready for that level of commitment just yet.  The market can sometimes act like a fiancée who gets cold feet a week before the wedding, then starts calling airlines for ticket prices to skip town... but then ultimately decides to go through with the whole thing anyway. 

In a nutshell:  SPX and NDX both reversed and dropped, but the time for bear entries was near the inflection zone, and has thus passed for now.  Neither market has overlapped any critical bear levels so far.  And, given where we sit in relation to the peak and trough, that means the current price levels aren't easily actionable.  Veteran Elliotians could watch for small directional impulses and act against the starting points of those impulses, but other than that, this is a spot to "check and call small bets," not a spot to go all-in.  Of course, there will be far more promising actionable zones again in the future -- there always are -- so there's never any need to push a marginal hand.  If you didn't already jump into the pot and sell near the high, then you might want to save your stack for better trades.  Trade safe.

Thursday, June 8, 2017

SPX and RUT: Just the Fax, Ma'am

Getting right to the charts, RUT still looks more bearish than bullish.  If bulls could sustain a breakout, that would change, of course.  The chart notes 1426, but the megaphone resistance line is probably more critical:

And SPX is in an inflection zone:

In conclusion, the dashed blue median line above, combined with the potential wave count, does present this as an inflection zone.  If you're bearishly inclined, there is now a fairly clear zone to act against (2441ish).  Trade safe.