SPX, RUT, INDU, NYA Updates: Understanding the Beard Through First-Hand Experience

Before I get into the charts, indulge me a moment of digression into a personal story. 

As many of you know, I often go several days without venturing out into public, and as a result, I can be somewhat lazy when it comes to shaving.  Well, as of this evening, I had gone perhaps 4 or 5 days without shaving and my beard was growing in fairly well, so I decided to do something radical:  I shaved only my neck and left the rest of the beard, above the jawline. 

I went with a look commonly referred to by hipsters as "The Ben Bernank."  It's the look favored by Fed Chairmen everywhere, and offers the substantial economic benefit of reducing wear and tear on your razors.  Oh wait... I guess for Keynesians, that's an economic detriment -- something of a razor "liquidity trap" if you will. 

Anyway, I showed my wife the new look, and when I asked her what she thought, she gave me an unenthusiastic shrug and responded, "It's okay."  I began to get a glimpse into some of the pain endured by Mr. Bernanke. 

Despite this, I think I'll keep it for a while.  My hope is that being Beard Brothers with Bernanke might allow me to better understand the enigmatic Fed Chairman... and with some luck, it might even create an inter-dimensional portal into the Mystic Powers of the Beard, which could offer us advanced warnings about the Fed's next move.  I feel closer to Ben already -- as clearly shown by my casual use of his first name in this sentence. 

I might even try to endure the beard until the next Fed meeting, to see if it gives me an "insider perspective" on the machinations of the Fed Board -- such is my unending dedication to my readers.  Of note, astute students of the English language will quickly recognize that there is a difference of only one vowel between the words "Board" and "Beard."  Coincidence?  Not likely.  I'll keep you posted.

Moving onto the charts, the hypothetical ending diagonal I proposed on Tuesday has gained a bit of favor in my view, due to the depth and complexity of the retrace of the prior wave.  At the beginning, diagonals are all about frustration and whipsaws.  Toward the end, they're a God-send and fairly easy to play -- at least, they are for those who are aware of them... for everyone else, they're account burners, and usually end up trapping the majority on the wrong side of the trade. 

If this is what's happening, it's still in the early/middle, less-predictable phase.

Next is the big-picture combo chart, which still shows that most major indices are trading above key breakout levels.  Again, right click and select "open in new window" to bring up the full-size chart.

Next is the SPX 5-minute chart, showing the preferred count, which still expects new highs down the line.  Bulls aren't out of the woods, by any means, but I still think the edge has to be given to higher prices until proven otherwise.

The next chart shows an interesting potential analog between a pattern formed back in February, and the pattern just recently formed over the last few sessions.

RUT has picked up a ST bullish trade trigger pattern of an inverse head and shoulders.  SPX shows a similar pattern.

The big picture RUT chart reveals why there's been some indecision and gyration in that index.

NYA has formed a potential a-b-c bull flag.  The pattern isn't complete unless the top line is broken.

In conclusion, the charts are marked with several key levels to watch.  The preferred count continues to expect new highs will be made, either within the ending diagonal pattern, or within the more bullish conventional impulse.  But the bears have made a pretty good run here, and have cast a bit of a shadow over my new beard.  Speaking of, mine is much less scraggly, with hardly any gray.  Also I still have the majority of my hair, and I'm way taller.  Trade safe.

SPX, BKX, INDU and Silver Update: Nobody Said It Would Be Easy...

Yesterday's market maintained trade within the acceptable retrace range for a 2nd wave correction, however the decline was a bit stronger than I anticipated.  What happens over the next couple sessions will hopefully go a long way toward narrowing down some potentials.

The ending diagonal count I proposed a couple days ago is still alive and well, and if this is unfolding, it will be extremely difficult to anticipate until it matures a bit.  (Chart below.)

The Happy Bull count has tested its limits with the strength of yesterday's decline, but until the prior swing low is taken out, it remains feasable.  It's also possible that this is still part of the larger red wave (2), as shown below.  

And it also remains on the table that ALL OF wave (v) completed at the recent high.  It's a bit of watch and wait right now -- so at the moment, paying attention to the support and resistance lines shown on the chart might be of more value.

The Angry Bear count would look something like this (below):

There are some bigger picture points to bring up, one of which is the NYA, which has bumped its head on a few long-term resistance levels, which could create problems for the broader rally.

The NYA has also formed a passable short term triangle, as has the Dow.  The lines drawn in on the NYA (below) aren't intended to be a prediction, merely an illustration of how a triangle can over-throw a boundary and then reverse.

BKX also has a triangle, and this one looks very trade-able.

Next is silver, which has so far retraced back to an almost-perfect retest of the presumed diagonal. 

And RUT continues to gyrate around an important pivot level.

In conclusion, yesterday's action left a lot of gray areas.  It may have been part of a normal shakedown before the market moves higher, or it could be the start of something more bearish (or at least something less bullish).  There are a few patterns outlined above which are worth watching for potential clues.  Trade safe.

SPX, RUT, INDU Updates: No Material Change -- but Some New Discussion for Bears

Yesterday performed as expected in regards to a consolidation/correction.  This correction may be over, or it may have a bit more downside left.

Some readers asked about the possibility of a top being in place, so I'll address that in more detail in a bit.

Currently, it is assumed that a standard impulse move is unfolding.  If that is in fact the case, then the next wave up should show some strength and upwards acceleration.  If for some reason the next wave does not demonstate those characteristics, it will call into question the most bullish interpretations.  As I said yesterday, there is currently no reason to believe otherwise, but the market will let us know as the move matures.  I've drawn a few extra charts for you, to help readers understand what to look for.

The first chart is the "traditional" upward impulsive structure.  This is assumed to be the pattern unless the market says otherwise.

  

The next chart depicts a hypothetical ending diagonal and the rough form which could be taken by that type of structure.  Ending diagonals can be account killers, because there's a lot of whipsaw action, and over-aggressive traders on both sides end up getting burned.  Again, there's nothing to suggest this is unfolding, but "forewarned is forearmed" as they say, so it pays to be aware of the potentials.

Several bears wanted to know if it's possible there's a top in place.  It is technically possible, because the key index which caused me to rule out certain potentials is the NYA, and the NYA has not made a new high yet.  Until it makes a new high, then more bearish possibilities remain open.

Below, I've annotated the NYA chart, and explained my reasoning as best I can within the confines of the chart.  I'll run down the bull/bear arguments quickly. 

In favor of the bull count:   

• The move down counts very nicely as an ABC correction.  The NYA decline is a stretch to count impulsively.
• The move up counts very nicely as a 5-wave impulse.
• There's an island reversal bottom in place. 

In favor of the bear count: 

• The NYA has thus far failed to make a new high.
• Anytime there's a retest of a previous high (or low), the potential exists for a turn.

Given the above evidence, I have to favor the bull count... but the market will tell us which is correct, with a break of one of the two invalidation levels. 

It is also possible that neither is correct, and that something unforeseeable is happening.  For example, the larger correction could stretch out into a more complex form, adding another abc series of down waves before rocketing upwards in wave (3) of (v).  Or the ending diagonal previously discussed could unfold.

If I had to break it into percentages, leaving out "other" for the moment, I would say: 70% bull count, 30% bear count.

  

  

NYA and INDU have similar forms, but the INDU does offer bears the option of counting the decline as an impulse, albeit an ugly one -- especially in contrast to the beautiful impulsive nature of the subsequent rally.

It would be wholly acceptable and normal for the bullish count to show some additional declines before further rally.  A "normal" 2nd wave retraces 38-62% of the prior wave.  I haven't put target boxes on these charts because the last leg of the rally failed to reach these targets at all, so I'm a bit gun-shy of this market.

Next, a broader view of the INDU, and a bullish trade trigger.

Next, the short-term SPX chart, which does highlight a form that has the appearance of a rising wedge.  This could possibly be the beginning of the ending diagonal previously discussed.  As I said earlier, if there's no upward acceleration if/when the recent swing highs are captured, then we'll start considering this potential in more depth.

And finally, the short-term RUT chart, which is showing the same basic pattern as most everything else.

In conclusion, the charts still appear weighted in the bulls favor.  Short term, there may be some more correction/consolidation in order first, but it does appear that higher highs will be along eventually.  Until the structure looks more complete, or until the bears start reclaiming some key levels (whichever comes first), I feel it's prudent to remain on a bullish footing.  Trade safe.

SPX, RUT, Silver Updates: The Ongoing Power of the Bernanke Put

On Monday, Bernanke emerged from his lair and jawboned QE3 into virtual existance, again sending the market skyrocketing.  Before I go much further, I want to put up a chart I stole from Zero Hedge, who stole it from Strategas Research.  I don't know if they stole it from someone else.

 
As we can see, the government has managed to forestall systemic collapse with massive amounts of debt and spending.  If this doesn't drive home the point about what sad fundamental shape things are in, then I don't know what will.  Uncle Sam and Uncle Ben (not to mention Uncle ECB) are spending and printing like there's no tomorrow, and the SPX is still below its '07 high, and the economy still sucks.  What does that tell us?

It tells us that, effectively, all the government has accomplished with several years of record spending is to keep the market and economy treading water.  It's akin to being on a sinking ship where the captain is throwing everything of value overboard in an attempt to make the boat lighter and slow the sinking.  The question is whether equilibrium can be reached in time.  Can enough stuff be thrown overboard to keep the ship afloat long enough to make it back to port and live happily ever after?  Or is the ship doomed anyway?

And at what point do we have to start tossing the passengers?

In any case: clearly, we still haven't reached equilibrium, or they wouldn't be talking about QE3 at all. 

Everyone with two-thirds of a brain realizes that the QE program does little except promote inflation.  Oil is already over $100 a barrel, and the market is rallying like crazy anyway -- so why jawbone more QE at this point?

Well, if you're in the mood for a Tin Foil Hat theory, here comes mine.

Retail investors left this market in droves after the '08 crash, and many of them still haven't returned.  Usually they return after a big rally like we've had -- which prolongs the rally while the pros sell off all their inventory to the retailers.  This goes on until the retailers are all chock full of stock and there's no one left to buy any more, except an estimated 26 pimple-faced Burger King employees who just entered the workforce... so the market goes back into bear mode.  Late in that cycle, the pros can buy back their inventory again near bear market lows to sell to the retailers again... and thus the great circle of life is complete. 

But the retailers haven't come back in this case.  I believe some of this is due to the demographics factor -- Baby Boomers are in the retirement phase, and, quite prudently, many are unwilling to take on the same level of portfolio risk they did when they were younger.

How do you complete the cycle without the retail investors? 

Obviously, somebody's buying this market; that's the only way it can keep rising.  That "somebody" has been the Fed's printing press, using the pros as its surrogate.  And more recently, it has been the ECB's printing press.  Ultimately, the pros need the retail investors to come back, to allow them to sell all this inventory they've been accumulating. So how to get the retailers back into the market?

Enter Bernanke.  Jawbone the market higher, make stocks irresistable, make all other investments unattractive, get the retailers back in the game, then pass the bag to them -- and everyone's in the clear.  Except the retailers, of course -- but Bernanke doesn't really care about them.  What have retail investors ever done for Bernanke?  Nothing!  That's what.  And to make things worse, when Bernanke was in elementary school, the other kids (young future retail investors) used to make fun of his beard.  So there's probably a bit of resentment still brewing there.

Anyway, I don't know if that's the plan, or if I simply ate one too many paint chips in grade school while daydreaming of new nicknames for young Master Bernanke's beard -- but sometimes one can't help but look at this stuff with a cynical eye toward the sinister.

Not to say this potential wasn't shown in the charts ahead of time -- clearly it was.  And speaking of, let me step down off my soapbox and on to the charts.  Well, I'm not literally going to step on the charts... nevermind.

At this point, I think 1435-1440 is all but guaranteed.  I don't see much in the market's way until that level -- but there is an interesting confluence of theoretical resistance clustered in that zone, as shown below. 

If the market can break through there, then there really isn't much else to stop it until the 1500's.

There are some indications in the wave structure that the 1500's could be on their way.  If this wave takes a traditional five wave impulsive form and breaks through the resistance mentioned above, then the targets range from the high 1400's to the 1500's (see below).

The chart above references a "false wedge" and mentions 1995.  Below is a chart of (a portion) of the massive wedge that formed from the 1987 crash until 1995.  This wedge was discussed in Prechter's 1995 doom-and-gloom book At the Crest of the Tidal Wave: A Forecast for the Great Bear Market. 

We all know what happened to the market from 1995 to 2000, and it wasn't doom and gloom.  It was all flowers and fluffy bunnies.

Not to bash Prechter, he's a smart guy, and as I've said before, I "owe" him for introducting me to Elliott Wave.  And you can't blame him for missing a call -- heck, I've missed calls too; everyone has.  But you have to adapt to the market. 

It's one thing to miss a call -- it's entirely another to miss a decade. 

Prechter's been looking for the world to end for as long as I can remember -- and finally, after 13 years of looking for it, he finally got close in 2008... but even then, the market never retraced into the price zone where he originally turned bearish, back in 1995.

The point is: don't get married to your convictions.  Nobody's smarter than the market, so let the price action dictate. 

"Demanding" stocks go down because the world is a mess (or because it's all Funny Fed Monopoly Money) is akin to demanding Sears sell you a washing machine for $29 because you don't think it's "worth" $299.  And maybe it isn't -- but that doesn't matter.  Everything is "worth" what the next guy will pay for it. 

If prices have to drop because not enough people are willing to pay current prices, then there will be warnings -- it won't happen overnight.  If the "Great Bear" shows up in either stocks or washing machines, the market isn't going to drop to zero in 3 days.  There will be signs as prices start to fall.

Returning to the charts, it now appears that the bears only short-term hope for a stop near 1440 would be if this wave takes the form of an ending diagonal or similar.  Given the current price structure, there's no way to know today if that will happen or not -- the only thing that's caused me to consider this possibility is the confluence of potential resistance in that 1435-1440 zone.  The wave structure should give indications down the line, if it's going to unfold like this.

Looking at the total market picture, it does appear that the market has now successfully backtested the recent key breakout levels, which means "no long-term bearishness" unless and until those zones fail.  (Right click the chart, select "Open in New Window" for the full-size chart.)

RUT is also very suggestive of higher prices.  The RUT has closed back above its bullish trade trigger.  As long as the market maintains closes above the breakout levels in the charts above, and the trade trigger shown below, there is nothing to be bearish about in these charts.

Next we have silver, which I discussed yesterday, and which is also suggestive of higher prices.  I have provided some preliminary targets for the preferred count, and I'll try to narrow these down as the move matures.

Next, just a simple chart of the SPX showing the trendchannel and the closest support zones.

And finally, an edumacashunal chart.  I didn't publish this chart in the weekend article, because after I looked at some other markets, I felt too much doubt had been cast on my original read of it.  But we discussed some of the potentials of this chart over the weekend, so I wanted to update it now that the move has clarified. 

It does show how tricky market prediction can be at times.  Even now, after the move clarified, it's still hard to figure out exactly what happened within the red circle.  It also reveals that Friday's structure, which looked like an ending diagonal was, in fact, a leading diagonal.

In conclusion, Monday's rally could count as a completed small 5-wave structure, so there may or may not be a small consolidation/correction due over the very short term -- but it's currently expected that this correction will only be part of a larger impulsive rally.

Since early February, while I've been largely expecting higher prices, I have also been quite skeptical of this rally.  I suppose, because of everything going on around it, I still am.  As of this moment, though, as long as the bulls can maintain the recent key breakouts shown on the big picture charts above, there is little in the charts to be bearish about.  Of course, all that could always change tomorrow -- but until it does, there's no reason to assume it will.  Trade safe.

SPX, RUT, NYA Updates with Bonus! Silver Chart: What Happens Next is Likely to Determine the Trend for Several Weeks

Friday provided a new low, but it wasn't really the "type" of new low I was looking for -- it was too shallow.  So there are still several options open.  As I stated on March 16, when I suggested a turn was coming, the bigger question is what degree that turn would be.  Well, now we've had that turn, but the market still hasn't answered the question. 

I'm still leaning toward the view that there is now a more meaningful top in place... but in continuing to attempt to examine the charts as objectively as possible, I believe the bears absolutely have to keep this market below the prior swing high -- if they can't, then we're almost certainly headed into the mid/high 1400's... or beyond.  In fact, some quick "back of the napkin" calculations suggest the 1500's would be on the table. 

I see very little in the way of middle ground here, so this strikes me as another critical inflection point.  A big reason for that view is the NYA chart.  A fair number of Elliotticians are still looking at this as a larger possible fourth wave correction, but NYA has ruled that out, due to key overlap of the first wave.

So, from what I see, this is either the start of a bigger decline -- or it's only a 2nd wave correction, which means there should be a solid amount of continued upside.  In fact, if this is a 2nd wave correction, then that suggests a strong wave up is on deck. 

On NYA, we can also spot a nice clean red wave (iv) triangle just above the recent lows.

As noted on the chart, trade above 8252 will increase the odds of eventual new highs. Trade above that level doesn't mean the correction can't stretch on further first, but it does greatly increase the odds that this wave is only a correction.

Let's look at some other charts.  As I said: objectively, these all look like small A-B-C's right now.  The only thing still leaning me toward a bigger top is the larger structure.

Short term, the SPX has a small overhead gap that could become a retrace target.

RUT should also provide some good clues.  If the overhead triple-confluence resistance level doesn't contain the market, then bears will probably need to wait a while for another intermediate-term opportunity.

Here's a bigger picture chart of the SPX showing the two potentials.  If the recent highs are taken out, then we can expect the trend will remain pointed up for at least several more weeks.  If they're not, then bears have free reign to run with the ball.

In conclusion, I'm sticking with my call for a larger turn based on the bigger structures -- but the short term structures have added zero confidence to that call, and in fact seem to be suggesting the opposite.  A break of the recent highs will turn me short-term bullish.  As I see it, the trend of at least the next few weeks should be determined by what happens at this juncture.  The good news is: whatever happens here should provide some solid trade opportunities for either shorts or longs.  Trade safe.

Alert!  Alert!  Just added:  BONUS SLV chart, yours absolutely FREE in honor of our

1,074,716th hit! 

(Actually I added this in honor of numerous loyal supporters/readers who follow silver.)

The chart is self-explanatory. 

SPX, RUT, NYA, NDX Updates: Some Possibilities Still Open, Others Now Closed

The market has done what we've expected over the short term and traded down into the SPX target box -- but it has yet to answer the bigger questions.  Right now, the decline off the high looks like a very nice A-B-C, so unless the bears can make some new lows, they could be in trouble.  We're simply going to have to wait for the market to tip its hand here.

Of note, the NYA knocked-out the possibility of this being a 4th wave correction.  So the two most plausible options still on the table are:

1)  The top is in.
2)  The recent top was only wave (1) up, with (3),(4), and (5) still to come.

Here's the NYA chart showing its key overlap.

I've looked at a lot of charts tonight, and while I remain in favor of the top being in place, there is as yet absolutely nothing to confirm that -- in fact, given only the information that is in the charts right at this moment, one could argue that this was simply a correction to the rally, and that correction is basically over.  So until proven otherwise, shorts who haven't taken profit need to be quite cautious at these levels.  If this was simply a second wave decline, then the next wave up should be powerful.

RUT has the same appearance of a "perfect" 3-wave decline.  This is possibly why RUT has, so far, failed its target slightly.

Also of interest, a bearish trade trigger has taken shape in SPX.

NDX, being the rebel that it is, looks more like a first wave, or a-wave, down.  So this might be some evidence in support of the preferred count. 

In conclusion, at this exact moment there is simply no way to have a solid idea of what's coming next. What happens on Friday or Monday should provide some answers.  Is the market going to create another wave down and complete an impulse move off the highs?  Or was this just another pause in the ongoing rally? 

Place your bets with caution -- and as I've said before:  cash is a position too.  Trade safe.

SPX, RUT, and CVX Updates: We're Experiencing a Temporary Shortage of Creative Article Titles... Please Stand By

The market did very little on Wednesday, which is actually a somewhat encouraging sign for bears.  To some degree, one can gauge who's in control by simply looking at which price direction the market is stuggling to advance.  The move down off the recent high was fast and easy -- but, especially on Wednesday, the bulls struggled to regain that ground and didn't get too far.  This suggests that the bears remain in control, at least for the short term. 

This further suggests that the preferred view from the past couple days, of at least one more leg down, will probably come to pass.  The bigger question is whether there will be a new high after that leg.  I remain in favor of the idea that the market is in the early stages of an intermediate trend change, but until there's confirmation, there are no guarantees.

Again, I feel the real test will come at the recent breakout levels for this indices.  It's premature to be overly bullish or bearish until there's a backtest of prior resistance, to see if it's become support.  What happens from there should tell us future market direction with a high degree of certainty. Of interest: the Trannies have, so far, failed that backtest; NYA is approaching its backtest; and most of the other indices haven't reached that prior resistance zone yet.

For the short term, as discussed, it still appears there's at least one more leg down coming.  The zone to watch for a potential bounce is 1380-1391 SPX.  If the market can break through there and take out the prior wave 1 high, that will rule out the fourth wave.  The alternate bullish count, which envisions the possibility that this is wave 2 of (v), cannot be ruled out until the prior wave (iv) low is traded beneath.  I continue to give that bullish count low odds.

  I also wanted to update the RUT chart, which continues to present a very nice bearish trade trigger.

And I wanted to update the Chevron (CVX) charts, previously published in this article, where I called a top in Chevron (note, the linked article contains several additional big picture charts).  Chevron has broken down from its presumed ending diagonal, and if this count is correct, should make a rapid move down over the next couple months.

The chart below shows the rough path expected to be taken by Chevron.  Note that the chart below is not intended to be time-accurate, merely a rough guideline as to the expected price movement.

In conclusion, things continue to appear promising for the bears, at least over the short term, but there is as yet no confirmation of any meaningful trend change.  If the preferred count is correct, then a top is either in place -- my "margin of error" count says there could be one more new high.  I do expect this is the end of the road for this rally one way or the other.  In the meantime, there are some trade-able short term patterns presenting themselves -- also, in a perfect world, the Creative Article Title Fairy will leave some nice new titles under my pillow tonight.  Trade safe.

SPX and RUT Update: Not Much to Add

Some days you look at 30 charts and still conclude there's just not much to add.  Today is one of those days -- for a more broad overview, please see yesterday's article. 

Both potential short-term counts were expecting a turn, and that's exactly what we got.  No questions have yet been answered as to the degree of this turn.

The wave down off the highs does appear impulsive on most indices, suggesting at least one more wave down is reasonably likely to unfold.  The market this year has presented a few prior declines that appeared impulsive, however, and an above-average number of them turned out not to be.  Thus: in a normal market, I would have high confidence that at least one more leg down would unfold here -- in this market, I'm not so sure.  I still have to favor what I see, so I am favoring at least one more leg down after the current bounce completes. 

The chart below shows the potentials.  I'm favoring at least one more wave down that takes us back into the yellow target box, as roughly sketched-in on the chart. 

The next chart is the Russell 2000, which also appears to have formed an impulsive decline, and presents some potentially useful trade triggers and targets.

Ultimately, not much has changed in the outlook since Friday.  If this is the start of a much larger decline, then we need to see at least three more waves unfold to the downside and break the prior wave 4 (red wave (iv) on the SPX chart) bottom.  At that point, we would have good confirmation of a larger trend change.  In the meantime, we'll have to take it day by day.  Trade safe.