Monday, September 29, 2014
Friday's move has simplified the charts a bit, which is always nice. By all appearances, 1965 SPX has become critical support. 1991 SPX is still first important resistance, though decidedly less informative of the market's intentions if broken; whereas a breakdown at 1965 would suggest a solid decline of at least 30-40 points, with good potential for 55-65 points (or more) before a decent bottom.
We're going to start with the SPX 30-minute chart, which looks rather straightforward. Before Friday's open, I hypothesized the upper boundary of the black trend channel, which ended up being right where Friday's rally stalled. The chart is pretty self-explanatory, which (thankfully!) eliminates the need for 400 charts today. I did draw up a couple more charts anyway, but only because I like you.
If the bearish 1-2 nest is correct, it appears that red wave 2 likely completed on Friday, at the black trend line. And if this is indeed the case, then a strong decline is on deck.
One count that's not shown above is the potential that the decline to 1965 actually marks ALL OF wave (1)/A down, as opposed to a bearish nest of first and second waves (or the ABC). I strongly considered that possibility on Friday, and berated myself this weekend for not discussing it, since that count would have anticipated Friday's rally. I'm still awaiting the arrival of "thought-to-chart" software, which will allow me to simply "think-in" the trend lines and wave counts as quickly as I see them, without having to label everything by hand, thus allowing me to publish charts much more quickly. The good news is: I finally ordered that software last night. At least, I think I did. Depends on whether my "thought-to-anything-you-can-imagine" software was properly installed. (I don't think it was, because I never did receive that pink chimpanzee with the face of Gilbert Gottfried, which I ordered well over a month ago.)
Anyway, next is an update to INDU's long-term chart, with a downside target noted:
A close-up of INDU reveals that, so far, all the rally has done is back-test the most recent breakdown:
(continued, next page)
Posted by PretzelLogic at 12:59 AM
Friday, September 26, 2014
Wednesday's update was the most unabashedly bearish update I've published since late July, when I anticipated a correction to SPX 1899-1907 (exact target calculated August 1), which would be followed by new highs.
Speaking of, I want to reprint something from that update of August 1, because I think it may be relevant to the current market:
The point is that we can't force things; we should try to let the market come to us. When it does, then we should go with the flow -- take what it gives us, and let the waves do their work.
It's in our natures to want more. So we sometimes fight our way into positions that we know are ill-advised -- and then we fight our way out of positions when we know we should just let them ride. But if you can master those two self-defeating tendencies, then your account will grow by leaps and bounds. There will still be reversals of fortune, but they will come less frequently, and the increases will ultimately outweigh the reversals.
I think trading attracts the ambitious, so I have to believe these are almost universal struggles for traders. So your ambition got you into trading -- great. Now if you want to keep trading, then you must learn to temper ambition with discipline.
It might help the ambitious to consider what a friend once told me: "You'll get more done in six days than in seven." Meaning: Sometimes the most productive thing we can do is nothing.
"Nothing" as in: Don't force trades.
"Nothing" as in: Leave your position alone once you're finally in that trade you wanted all along.
I reprinted this because, by all appearances, the market is currently in a third wave decline, and many traders tend to leave money on the table during third waves. Third waves are usually strongly-trending moves, and thus are best approached as trend-following waves, as opposed to waves where one tries to get too fancy. Let's take a look at the NYA 30-minute chart to see why this wave could run faster and further than many expect. It's not entirely clear-cut, but it is possible that we're in a third wave at two degrees of trend. I can't say for certain. But, in the event that we are, there will be a lot more downside in store rather directly.
Incidentally, NYA captured Wednesday's downside target.
A look at SPX shows that the market has broken down from its red base channel. Nothing bullish can happen with the market outside that channel. Please note that this does not necessarily make the inverse of that statement true. In other words, the market can reclaim that channel briefly, then decline again. But until it reclaims that channel, there's no reason for bears to even begin to worry.
We have an interesting confluence of Elliott Wave and classic TA approaching, which makes it worth paying attention to, especially since nobody on the planet can yet guarantee that this decline isn't simply an ABC.
And here's a bigger-picture look at that black trend line:
(continued, next page)
Posted by PretzelLogic at 3:23 AM
Wednesday, September 24, 2014
Last update noted that bears had an excellent shot at taking control of the market, and the subsequent sessions have gone well for bears. The next couple sessions appears to be critical for bulls. Let's get right to the charts, and we'll start with NYA, which again seems to be revealing the market more plainly than SPX or INDU. Readers will recall that NYA suggested a bottom on September 15, and at the same time, revealed five waves down, which suggested a bounce toward 11,000, likely to be followed by new lows.
Presently, NYA has reached the first of two downside inflection points.
If this is simply a corrective decline at a smaller wave degree, the market will likely bottom either directly, or at the blue 3/C on the chart -- this would complete the alternate count of 2 of (5). If this is an intermediate bear wave, then NYA will instead ultimately go on to form a five wave decline (after blue 3/C, we'll have 4-up and 5-down), then it will bounce more significantly before declining again to new lows. I'm favoring the idea that this is a bear wave.
A bigger picture look, via SPX:
COMPQ near-term (continued, next page):
Posted by PretzelLogic at 2:32 AM
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