Friday, May 27, 2016

SPX and BKX: Possible Canary

There's not much to add to recent updates, but I do have a chart that may help act as a near-term canary to help determine if the proposed "flat C" wave is complete.  Let's get right to it.

The chart that may help determine if ALL OF C is complete is BKX, as outlined below:

SPX's chart below:

In conclusion, BKX may help point the way to the completion of the proposed C-wave.  Because BKX has already declined more significantly than SPX, keep in mind that BKX could make a new low at the dashed red line, then turn and bounce in wave 2/B during which time SPX could make a minor new high -- but an event like that would make any minor new high in SPX a decent sell opportunity against a reasonable stop.  Of course, if BKX fails to make a new low here, then we'd have no impulsive declines to signify a turn was underway yet.  Trade safe.

Wednesday, May 25, 2016

SPX Update: Upside Target Captured

On May 20 (after SPX captured its downside target zone from May 4), I attempted to sort through the virtually-infinite options, and ultimately arrived at a preferred target of 2070+ for the next move.  Yesterday, the market captured and exceeded that target.

People who are unfamiliar with attempting their own Elliott Wave analysis may not realize that predicting the C-wave of an expanded flat is one of the most difficult calls to make, because there is virtually nothing in the price pattern that tips the market's hand -- which is one of the reasons I included so many caveats when I made that call.

Now that we've broken the relative high at 2071, it at least clears a few options from the table (although I was never showing those options on this chart, so there's nothing to delete or add):

In conclusion, there are two options for the C-wave -- one is to stall near current levels (blue 2), the other is to stall north of 2085, but south of 2111 (red 2).  The view that 2025 is most likely a B-wave (thus due to be broken) remains modestly preferred, so we should stay alert to a turn developing in the near future.  Yet because of the ambiguity at the bottom and the 2022-25 target capture, we can't get complacent here, and have to consider the alternate "Bull: 5" count -- so bears who are inclined to take action may want to act against small impulsive declines, and stay nimble if the level they acted against is subsequently cracked.  Trade safe.

Monday, May 23, 2016

SPX Update: Understanding Elliott Wave and More

"When you're one step ahead of the crowd, you're a genius.  
When you're two steps ahead, you're a crackpot." -- Rabbi Shlomo Riskin

Apparently I failed to convey my sentiments well enough in the prior update, so we're going to cover a few things to help clarify that -- and to help clarify my overall style of conveying my analysis.

Let's start with summing up what I was attempting to convey in Friday's update:

1.  I am continuing to lean bearish, at least in the sense that it appears reasonably unlikely that 2025 marks a significant bottom.

2.  However, that does not preclude a near-term rally -- in fact, as of Friday's update, I was FAVORING a near-term rally (via the outlined "black c-wave" path).

3.  Due to the ambiguity of the pattern, and the fact that my standing SPX target of 2022-25 from May 4 was captured, it's difficult to favor a directly bearish outcome from here with CONVICTION.  Thus I included a whole bunch of caveats.

4.  Intermediate-term, I continue to lean bearish and suspect this year's lows will be revisited and broken.  The question the market has not answered is whether 2111 is the "final" high for this rally, or if a marginal new high is still forthcoming -- that's what was meant by the statement that it's possible we completed a "bullish fourth wave."  Incidentally, sustained trade north of 2135 would cause me to reexamine bearish intermediate expectations.

Let's move on to how I convey things in general, along with a few Elliott Wave terms that have definitive meanings and which thus underlie definitive expectations.

When things appear clear-cut in the sense of pending market direction, I try to express that with clear-cut language that conveys at least some level of conviction.  For example, on April 27, I wrote:

In conclusion, if one is bearishly inclined, this is a larger inflection zone that stands a decent chance of turning the market.  All markets do have a little bit of wiggle room here, and if they were to run slightly higher, it wouldn't change the inflection zone unless and until the all-time high is reclaimed -- but we do seem to have an impulsive decline from 2111 in SPX, so we could be witnessing the early stages of a turn. 

I feel that's pretty self-explanatory, but it does presume at least a cursory knowledge of Elliott Wave Theory.  Under Elliott Wave Theory (hereinafter: "EWT"), impulsive declines point the way to the trend at the next larger wave degree, and one impulsive leg typically begets AT LEAST one more impulsive leg in the same direction, of equal or greater length.  Thus, stating "we do seem to have an impulsive decline from 2111 in SPX" is another way of saying "I expect at least one more leg down of at least equal or greater length."

I rounded it out with "we could be witnessing the early stages of a turn," thinking that was probably enough to clarify the entire statement -- but perhaps I presume too much.  For future reference, I often speak in terms of impulsive moves with the presumption that readers know what impulsive moves signify.  I sometimes forget that not everyone speaks the language.  Please keep the above information in mind for the next time I forget to mention anything beyond "that wave appears impulsive." 

Now, there is one exception to the rule that an impulse wave signals the trend at one larger degree, and that's when the impulse is the c-wave of a flat.  However, I always, without exception, note that flat pattern if I feel it's probable (or even possible).

So, to sum it up:  Barring the flat c-wave exception, an impulse wave is always expected to beget at least one more impulse wave in the same direction, and the next wave is virtually always of approximately equal or greater length.

On April 29, I wrote:

In conclusion, lower prices continue to appear likely over the near-term.  Bigger picture, the possibility for another 4th and 5th wave can't be ruled out yet, but this remains "bearish until proven otherwise" territory (as noted on Monday) for the moment.

I don't see how that can be taken any way other than "I'm bearish right now," so again in that instance, I was trying to convey my outlook in a clear manner.  Of course, it goes without saying that the updates of April 27 and 29 proved to be correct -- here we are nearly a month later, and the 2111 high remains intact.

Let's look at a statement with less conviction, but which I still felt was clear.  This was from Friday's update:

In conclusion, SPX finally captured its 2022-25 target, and that does represent an inflection point which provides bulls with some options that they didn't have earlier in the week.  If I had to pick an exact path from here, I'd be modestly inclined to think we follow the black "flat: C" on the SPX chart -- but literally anything is possible from here.  If the entire series of waves we've seen so far is not a flat but a bear nest, then we could easily collapse spectacularly.  If it's a completed bullish fourth wave, then we could rally straight on to new highs.

If we parse this and ignore all the caveats, we find the preferred outlook with ease:

"If I had to pick an exact path from here, I'd be modestly inclined to think we follow the black 'flat: C' on the SPX chart."  That's a very specific outlook, which called for a decent rally followed by a decline to break 2025.

So why all the caveats?  Well, first off, all trades need both an entry and an exit.  SPX captured its 2022-25 target, so that represented an exit point (either a partial or complete exit, depending on one's trading style).  Once a target is captured, in a sense, "my work here is done" for that moment.  I have often written that it's a fool's errand to attempt to expand one's account endlessly, and attempting the impossible only leads to ruin.  In other words:  There are times for action, and there are times to do nothing.  Just like the rest of life:  One cannot harvest crops indefinitely; one harvests in the Fall, then waits out the Winter, then plants again in the Spring -- then allows the crops to mature until it is time to repeat the cycle.  Trading follows similar rhythms.  Immediately after closing a successful trade is usually a time to step back and take new stock of the situation, not a time to assume you know exactly what's going to happen next.

Along those lines, in Friday's conclusion, I was trying to convey that the pattern wasn't terribly clear-cut anymore, so the market's price point at Friday's open wasn't necessarily a great place to enter new positions.  I called it like I saw it:  "literally anything is possible from here."  Too vague?  Sorry, but that's reality, and reality is sometimes vague.  I don't make reality.  I'm simply trying to interpret it, and sometimes multiple interpretations must be considered, and are equally valid.

"The people who fancy they are sure of themselves are the ones who are truly unsure... 
In the long run, it is the better-adapted man who triumphs, not the wrongly self-confident, 
who is at the mercy of dangers from without and within."  
-- Carl Jung, Depth Psychology and Self-Knowledge

Intermediate-term, the bear count remains preferred unless and until 2135 is broken:

Near-term, the wave structure is simply ambiguous, and has not locked itself into anything at the moment:

In conclusion, I'm still leaning bearish in the sense that the wave structure leading into 2025 is not suggestive of a sustainable bottom.  This is based on probabilities -- in this instance, there are a couple outlier patterns that at least allow the possibility for 2025 to mark the bottom of "alt: Bull 4" -- in other words, this is a place to pick one's entries and exits carefully, and to stay nimble.  Trade safe. 

Friday, May 20, 2016

INDU and SPX: SPX Captures Downside Target

In Monday's update, it became apparent that bears were holding the cards, based on the performance of the broad market.  Wednesday's update (which was posted late on Tuesday night), concluded that "all roads appear to lead lower."  Yesterday, SPX finally captured Target 1 (2022-25 SPX) from May 4.  This puts the market into a bit of a gray area for the moment.

It does not currently appear probable that the entire decline is complete -- however, because SPX captured my May 4 target (which was calculated based on the potential of a bullish 4th wave), we do at least have to stay alert to bullish potential, and realize that the market reserves the right to use that captured target level as a springboard.

If I had to pick a count from the myriad options now that my target has been captured, I'd probably lean ever-so-slightly toward the black "flat: C" count shown on the chart below, but I'm far from being married to that outcome. 

When the market makes things plain to me, like it did on Monday and Tuesday, then I try to convey that clearly -- and likewise, when the market hits an inflection point and/or grows somewhat ambiguous, I try to convey that as well.  As Mike McDermott says in the movie Rounders:  "Get your money in when you have the best of it; get it out when you don't."  It doesn't get any better than capturing targets.

INDU's bigger picture chart shows that there's an overhead confluence of several resistance zones, and sometimes confluences can act as price magnets:

In conclusion, SPX finally captured its 2022-25 target, and that does represent an inflection point which provides bulls with some options that they didn't have earlier in the week.  If I had to pick an exact path from here, I'd be modestly inclined to think we follow the black "flat: C" on the SPX chart -- but literally anything is possible from here.  If the entire series of waves we've seen so far is not a flat but a bear nest, then we could easily collapse spectacularly.  If it's a completed bullish fourth wave, then we could rally straight on to new highs. 

The important point is that we have to recognize that the "sure thing" downside target I spoke about earlier in the week has indeed come to pass.  Thus, for the moment, we have to take it one step at a time again.  Trade safe.

Tuesday, May 17, 2016

SPX Update: No Material Change

Last update covered the fact that bears appear to be holding most of the cards at the moment, and the price action since then has only adds confidence to that outlook.  Bulls got pretty excited by Monday's 20-point SPX rally (which was exactly what the market wanted), but that rally was only wave C of an increasingly-complex flat correction (this option was noted in passing on Monday's 10-minute SPX chart). 

On Tuesday, Monday's rally was immediately retraced by more than 100%, which decisively confirmed Monday's rally was an expanded flat C-wave, and not the beginning of anything truly bullish.

Near-term, bulls' main hope appears to be for the expanded flat to continue through another up/down sequence (expanded flats are time-wasting chop zones), but it appears that all roads ultimately point lower. 

Beyond that, there's nothing to add to Monday's update.  The odds are still that bears are holding the cards for now, regardless of whether bulls get a short-term reprieve or not.  Sustained trade north of 2112 continues to be required in order to call the near-term bear outlook into question.  Trade safe.

Monday, May 16, 2016

SPX and INDU Updates: Bears on the Verge

Since SPX captured Target 2 back on May 6, I have been "very slightly" favoring the bearish near-term count of an expanded flat, and it's beginning to look like I never should have doubted my initial read from May 4 (which was that any immediate bounce from the 2040 zone should be sold north of 2083).

SPX failed to make a new low on Friday, but INDU did, as did NYA and BKX.  BKX is now below its apparent key overlap, which suggests that the remaining bull pattern there is for an ending diagonal or similar.  Intermediate-term, the odds that ALL OF C are complete are increasing, though we still can't rule out a final thrust higher in SPX.

The preferred intermediate count remains unchanged over the past few months, and I'm still inclined to believe that the low from earlier this year will be broken:

Near-term, I've added a second, lower target based on the current pattern, though of course 2039 needs to be broken to confirm Target 1 and 2:

INDU appears to be one of several markets that likely provides a tell for SPX:

Bigger picture, INDU is attempting to whipsaw its recent breakout, which will create bearish potential energy if the attempt is successful:

In conclusion, the "very slightly favored" near-term count is on the verge of proving itself correct.  The preferred intermediate outlook remains bearish, and odds are increasing that ALL OF C completed at 2111 and an intermediate turn is underway.  Trade safe.

Friday, May 13, 2016

SPX Update: More Fun than a Barrel of Rabid Monkeys with Tasers

SPX has continued to move in a fashion normally associated only with seizures, thereby frustrating both bulls and bears, and causing everyone to consider smashing their computers with Janet Yellen (note: not that I am suggesting you try this.  Err... maybe.).

In other words, the market has behaved as it does when it's in a... drum roll please... chop zone:

Not surprisingly, given the chop zone of the prior two months, there is no change to the intermediate picture.  I still prefer the complex ABC, with C complete or nearly so (the annotation of May 6 remains true for the moment):

It's interesting to note that RUT made a new low yesterday (not shown), although SPX bounced shy of its recent low -- because it was required to, in order to fulfill its contract with Goldman Sachs (ticker symbol: GOD.  At least, that's what the symbol is supposed to be, according to an internal memo released by Goldman Sachs.)

Finally, no real update to the near-term SPX chart:

In conclusion, after the last couple months spent in the chop zone, and after the last several sessions in a chop zone within a chop zone, there's really very little to add to the recent updates.  Now it's more a matter of waiting for the market to point the way to its next move more clearly.  Trade safe.