No Material Change

There's been no material change in the outlook from yesterday, and as such, I'm taking the night off!  I have decided to do 4 updates a week for the time being, as there's usually (at least) one day each week when nothing really changes, and the current hours are killing me.

I did want to clarify that in yesterday's update, when I talked about potential monetary stimulus, I was referring to Europe.  I have little hope for a QE3 program from Uncle Ben at this time.  Trade safe.  :)

SPX and RUT Updates: Has the Market Finally Reached a Tipping Point?

A few readers have asked why I haven't published much in the way of longer-term projections recently (outside of a few hypothetical if/then type charts, which were contingent on key level breaks that never came), and the simple answer is: there haven't been any longer-term projections I've had much confidence in lately. 

About a month ago, once the market rallied back above the 1363 swing high, everything got a bit hazy for the longer-term outlook.  And while July was a good month for the short-term portion of this update, I haven't done much focus on the bigger picture because I felt there were no clear targets to focus on.  In retrospect, this was the correct approach. 

This has been a challenging market across the board, and the market has repeatedly punished traders who've held positions longer than a few days.  And while I've been preaching for several weeks that traders should remain cautious and nimble, and that no result could be counted on as long as the market stayed range-bound, I now believe the market has finally reached a decision point.

I suspect that what happens over the next week or so will telegraph the intermediate-term direction fairly clearly.

I'm not a big fan of following news and believe that news is generally noise -- in other words: the charts tend to lead the news.  However, I have always stated that genuine central bank policy actions (not rumors, but actions) do not qualify as news noise, because central banks represent liquidity... and liquidity drives the market.


As I've been discussing for several weeks, the charts haven't been crystal clear for the longer-term, but did appear to be coiling for a big move.  It would now appear that the market has been waiting on the central banks.  This coming week, leaders will be meeting to discuss monetary stimulus -- and the charts suggest that the market has finally reached a tipping point, coincident with these meetings.  Interestingly, the charts could support either outcome:  A disappointment for the bulls (i.e.- no printing) should lead to a sustainable decline; but an announcement of more printing should lead to a sustainable rally.

So the two main potentials visible in the charts seem to match the reality of the central bank fundamentals quite well.   The nice thing about following the charts is that no matter which announcement comes and which way the market breaks, the charts will then provide us with longer-term targets.  I'm pretty sure that the news won't provide that much detail.

Friday's bullish trade trigger I published for the Russell 2000 (RUT) was activated early in the session, and then easily reached and exceeded its target (as I stated Friday, the target was conservative).  I now want to update the bigger picture RUT chart, previously published on July 15, because the targets for the pending trade triggers ("pending" meaning they never triggered and became active) have changed.  Since the pattern has changed since they were originally published, I want to update them now before price crosses any trigger points -- additionally, there are two new short-term trade triggers which I've added.

On July 15, when I published this chart, I wrote:

This market may actually become more challenging going forward, because it is still trading in a large range, and strange things can and do happen in trading ranges...  I think traders should remain very nimble until the market breaks out of this range.  

These types of ranges can be very challenging to trade profitably, and if one doesn't take profits quickly, the ongoing price overlaps can nickel and dime one's account to death. A range like this suggests the market is coiling and building up potential energy for a large and sustained directional move, to be launched at some point in the future.

I continue to believe that this trading range has been part of the energy-building process -- but there are now, finally, some indications that market is ready to make a decisive move soon.

Below is the updated chart:

A close up version of the RUT chart with some additional support/resistance lines and info is shown below.  Note the 781 level applies over the short-term only.

It's interesting how much RUT has lagged the S&P 500 (SPX) during this recent rally.  SPX has made clean new swing highs, but RUT hasn't even broken through its lower-high July peak yet.

The SPX chart below shows that there is a confluence of trendline resistance in the zone just overhead.  Bulls need to break through this zone to gain clearance for a larger rally, so if bears want to maintain intermediate hopes, then this is where they need to launch a counter-attack. 

The pattern of the last two months is finally reaching another point where it could close the fractal.  If bears can close the fractal in this general area (the current blue C-wave would equal A near 1395) and then retake 1329, they will almost certainly gain control of this market for the next several months.  If they can't close the fractal here, then bulls have a good shot at launching a strong and sustained rally from this pattern. 

Again, what happens over the next few sessions is highly likely to reveal which side will control longer-term direction, and I've listed a couple preliminary targets, dependent on some price trigger points. 

I had drawn up a longer-term chart, but I want to hold off on publishing it until the market has clarified a bit more and is out of the noise zone.  Instead, I've outlined the key levels to watch on this chart.

A chart that might be serving as a warning to bears is the up volume to down volume ratio, which measures accumulation.  Friday was a very strong accumulation day: in fact, it was the strongest accumulation yet seen in 2012.  This suggests that while there may or may not be some consolidation or retrace here, eventual higher prices are pretty good odds over the near term (if not longer).

My first reaction when I looked at this chart was, "Somebody knows that there's monetary stimulus coming, and they're front-running it."  We should know soon enough.

In conclusion, the market is again flirting with the upper edge of the noise zone, and thus there's still not much to talk about for the intermediate term, at least not with any conviction.  However, this now appears to be a major decision point:  if bears can close the fractal soon, they can still take control of the longer term.  If they can't, then it's probably time to start wearing some bull horns. Trade safe.

SPX and INDU Updates: Are You a Bull or a Bear?

"Are you a bull or a bear?"  In today's modern world of lightning finance, where stocks are more widely-owned than at any prior time in history, a person's answer to that question is probably even more fundamentally revealing than his or her political affiliation.

But it's a loaded question.  When it comes to investing, trading, charting, and analysis, there are at least two psychological factors which all humans share, but which both need to be controlled and minimized as much as possible in the bull/bear equation:

1.  We all tend to see what we want to see.  In charts (and in life, for that matter), we often find whatever it is we're expecting to find.  This tendency is linked to:

2.  Our desire to be right.  The more consistently we're right about things, the more we feel smart, successful, and valuable.  This is such a deep-seated need that we actually go around the block at times to blind ourselves to anything which could prove us wrong.  Anyone who's married knows that their spouse has weaknesses that he or she refuses to see as true; and so do you and I.

We all have some degree of bias, that's unavoidable.  But as a result of the factors above, we tend to give additional weight and credence to data which supports our underlying bias, because that data actually rewards us emotionally (it appears to prove us "right").  For the same reason, we sometimes discount data or evidence that runs contrary to our bias (it would, heaven forbid, make us "wrong"!).  Most do this without conscious awareness; it actually requires conscious effort to do the opposite -- to suspend bias and "turn the charts upside down," so to speak.

The further emotional challenge is that questioning our bias creates uncertainty.  And as humans, we strongly dislike uncertainty -- we crave a sense of consistency, stability, finality, and resolution.  We want security; we want guarantees and insurance policies; we want our answers simple, straightforward, and easy to comprehend.  Then we want to stop thinking about it.

A quote I've always liked comes from F. Scott Fitzgerald:  "The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function."

There's a simple reason that a fair number of analysts seem to be either perma-bears or perma-bulls, and I can tell you, from my own experience, exactly what I think that reason is: it's simply because it's a heckuva lot easier to operate that way.  Pick a side and stick to it forever, and you save yourself an unimaginable amount of work and stress.  Plus you attract a core group of die-hards who are also "perma" somethings, and everyone is happy, even if they miss a decade of profits because the market went the other way.  Don't get me wrong: this group isn't happy from a financial standpoint (obviously) -- but they are happy on a far more important emotional and psychological level.  The perma-analyst is feeding their basic human need for acceptance, and makes them feel reassured that they are "right."

I bring this up because when I look at the present pattern in, say, the S&P 500 (SPX) chart, I think of a Rorschach ink blot.  I can imagine a psychiatrist asking, "Tell me what you see in this chart," and then passing it around a room full of traders:
 
"I see a bull!"
"I see a bear!"
"I see my father yelling at me for getting an F in math!"

What do you see?  (Also, to that last trader: it's time to let it go about your father. You're an adult now; take responsibility for your own life!)

I'm sticking with the bearish intermediate outlook (aka: the preferred count) for the time being, because the risk/reward is good, and the count has played out amazingly well, going all the way back to April (it hasn't performed flawlessly, of course, there have been a few minor miscues, but that goes with the territory).  For July, it has performed exceptionally well, and here's a quick review of the preferred count's July performance: 

-- Hit the 1325 bottom within 8 points
-- Hit the 1380 top within 11 points
-- Hit the recent 1329 bottom within 6 points
-- Captured yesterday's rally to 1362

The resounding message of this market has been "don't get greedy on either side of the trade."  Has that changed yet?  I'm not sure.

And the bottom line message I'm trying to convey is: I'm not married to my prior analysis.  Everything is based on the best information available at the time, but the market is a dynamic mechanism and reserves the right to alter its appearance -- so if the picture seems to be changing into something more bullish for the intermediate term, then I'm going to do my best to change footing accordingly.

The short-term picture is muddy as of Thursday's close, and I think new swing highs (above 1380) aren't completely out of the question here; in fact, I'm now roughly neutral on the odds.

Let's take a look at the Rorschach charts and see what we can come up with...

The first chart's focus isn't price; it's a chart I've already shared twice this month.  Now, for the third time in July, the market experienced a huge up-day with somewhat weak internals.  The chart below shows the ratio of advancing volume to declining volume.  Since it's a ratio, it's always relative to the total volume of the day, so it's not seasonally impacted by high or low volume days.  And yet again, Thursday's ratio shows that the accumulation levels were minimal. 

Bulls haven't really committed to these rallies; the rallies appear to be mostly short-covering.  Despite this, on the prior two occurrences this month, bulls have still managed to squeak in some new swing highs, so this indicator doesn't preclude short-term rallies.  It doesn't even preclude intermediate rallies -- it's just one more statistic that gives the bears better odds.

The next chart is the big picture SPX, and discusses the most likely short-term options -- again, it is unclear if the rally has peaked or will continue, but the 62% retrace level we've reached is a higher-than-average spot for a turn to occur, if it's going to. 

The very bullish big picture alternate count is still lurking out there as a potential, and I'm watching for signs that might suggest its appearance, in which case I'll shift intermediate footing.  Based on all the current evidence, that count still appears to be the underdog.

The short-term SPX chart is below, and discusses some key levels that will swing the short-term odds in favor of bulls or bears.  Note that micro wave 4 (small blue label "or 4?) could become more complex and simply chop sideways for a session or three.

Next is the Dow Jones Industrial Average (INDU), which has already exceeded its 62% retrace.  I have labeled this chart with the short-term bullish (still intermediate bearish) potential, which sees a new swing high coming in the area of the "C/(y)" label.  There are more bullish potentials in the present pattern, but they are not currently shown on the chart.

Finally, a short-term Russell 2000 (RUT) chart that suggests a pending bullish buy trigger.  The target, should the trigger become active, is conservative.  There is an aspect of this chart that disturbs me for the bear case, but it's only a potential at present, so I'll discuss it next week if it becomes appropriate to do so.

In conclusion, as I've said for some time, as long as the market stays range-bound, there's not much information being conveyed, and neither the bulls nor bears have crossed any of the key intermediate levels to confirm a more solid outlook.  A few days ago, bears were quite excited -- but at the time, I warned that the bears would accomplish nothing if they couldn't reclaim 1306 (which they didn't do).  So it still appears to be an undecided market. 

The intermediate odds still seem to favor the bears, but to date, there's been nothing in the price action to confirm the indicators -- and price is always the final arbiter.  One more new swing high (marginally higher than 1380) would remain within the tolerance of the intermediate bear outlook.    

Neither side has been able to get anything done in two months, and in the meantime, the pattern has built up a lot of potential energy -- so when it eventually starts breaking more decisively, it should have fuel to run for a while.  Until then, all we can do is take it day by day (which has worked pretty darn well all month) -- and try to shift intermediate footing if and when appropriate.  Trade safe.

SPX and US Dollar: Charts Lead the News Again

There's been no material change in the counts from yesterday, so I'm going to keep the update short and sweet.  Yesterday's update anticipated that the market was likely beginning a relief rally to the 50 or 62% retracement level.  This count remains valid, although sustained trade above the 62% retrace will call it into question and suggest that something more bullish may be afoot.

No change from yesterday:

Last night, while ES was still deeply in the red, I posted my interpretation of the short-term counts over in the forums (charts reprinted below).  Based on the futures action this morning, the counts I posted last night appear to have been the correct interpretation, and yesterday's rally was wave 1 of C (or possibly the start of something more bullish):

Here's the down-to-the-minute breakdown, for those of you following along at home:

The SPX daily chart below discusses two key zones for bulls and bears on an intermediate time frame.

A chart which I'd like to call attention to is the US Dollar, which recently hit its first target (which I published in mid-April).  The chart explains why I'm calling attention to it: There are two counts shown on the chart, and the less-bullish of the two could be finishing up right now.  Therefore, caution is warranted for those considering dollar longs, at least until the market declares that it's intending to follow the more bullish count. 

A funny thing happened after I finished this chart, too:  Europe announced it was going to save itself (I know: again!), and the Euro launched a huge rally against the dollar.  However, I think we need to be very careful about discounting that notion, because I had this chart done well before that announcement was made...

The more bullish count sees a correction, followed by more upside, but the implications for the less-bullish count are that the dollar rally is over on an intermediate basis.  We'll have to see how it develops from here, but the first target has been captured, concurrent with the potential conclusion of the wave structure.  I have been bullish on the dollar non-stop since September 2011 -- but I would now consider my stance as neutral on the dollar as of this moment. 

In conclusion, the bearish intermediate count remains preferred, but as discussed all month, unless and until the bears can reclaim some key levels, I remain fully cautious and on alert to the possibility of bulls pulling out a last-minute upset.  The bullish alternate count I published recently has not been invalidated -- and this "Save Europe" news announcement, coming right where it has relative to the charts (which are at a potential pivot point), is hard to ignore.  The charts are still at a point where things could go either way, and as long as the market stays range bound, there are simply no clear answers.  Trade safe.

SPX, NYA, and GOLD: 1306 Still Critical to Intermediate Direction

Yesterday saw the market return to the bottom of the recent trading range.  Once again, the intermediate-term seems to hang in the balance, and, once again, bears still need to knock out 1306 to be able to claim total victory of intermediate direction.  Until that happens, a trip back toward the top of the range remains possible, though in a moment I'll share some observations that may help point the way. 

I know no one likes to hear that things aren't crystal clear, but we've been here twice before now, and both times I've warned about 1306.  The first time, I was leaning toward the view that bears would take it (they didn't); the second time, I thought the bulls would rally back up (they did) -- and now, it's moved into the "too close to call" range.  So it's not unwise to await some degree of confirmation from the market, and bears who failed to pay attention to the past warnings got seriously burned. 

At this stage, one should still pick stops and entries quite carefully.  There appear to be five clear waves of decline at this point, so a snap-back rally to the 50 or 62% retrace level would not be unreasonable, though it's not entirely clear how deep any retracement is likely to run.  This is definitely not the type of market to take lightly.

The charts continue to convey a sense of chaos.  If you feel a bit like pulling your hair out, you're definitely not alone; trading ranges can be very frustrating, and that very frustration is one reason that solid breakouts or breakdowns can turn into big and fast moves.  As this range completes, there are traders trapped at the edges of the range, on both sides of the trade.  They hang on while the market is still in the range, and each time the market goes up or down, it traps more traders.  When it finally does break decisively, all those trapped bulls (or bears) finally capitulate, and the move gains speed.

The other factor I've observed when a range breaks is the "conditioning" factor.  By the fourth or fifth time a market reaches the edges of the range, people almost habitually cover shorts or sell longs.  And why wouldn't they?  Problem is, usually right about the time everyone catches onto something in the market, it's over... so if the pressure in one direction is significantly greater than it was before (selling or buying), the market absorbs that supply (of traders closing positions) relatively quickly, and then just resumes running.  And when that happens, suddenly everyone scrambles to jump back into the trade -- which, coupled with the factor discussed in the paragraph above, adds even more fuel to the fire.

The bottom line is: this is an excellent set-up for a third wave move; now we just need to see some confirmation from the market. 

I want to lead with a weekly chart of the NYSE Composite (NYA) that focusses on a level that's been an important bull/bear battleground on at least 9 prior occasions.  Apparently, the market views this level (highlighted with the turquoise ovals) as meaningful: so we should too.  The NYA was recently rejected at this level, and it makes sense to maintain an intermediate-term bearish bias as long as the market remains beneath that pivot.

Clearly seen in this chart is a market that's been essentially undecided for at least the prior 3 years.

The short-term NYA chart discusses some interesting factors, and the key level here seems to be 7451.  Until bears claim that, a rally back up to new swing highs still remains possible.

The three wave decline looks an awful lot like a subdividing nest of 1's and 2's, but as yet there's nothing to differentiate this structure from an ABC correction (other than perhaps some other indicators, discussed later).  If it's a nest of 1's and 2's, the next wave down will be extremely powerful; if it's an ABC, new swing highs are possible. 

This chart clearly illustrates an Elliott Wave base channel (down-sloping, in red), and a breakdown from the channel is what separates the 1-2 nest from an ABC.  A solid break of this channel and key 7451 level should lead the market into what's called an "acceleration channel."  If a third of a third wave is coming, then that is the type of move one can safely chase.

The S&P 500 (SPX) short-term chart suggests a relief rally could be beginning.  Again, a trip all the way back to the top of the range, or beyond, can't be ruled out yet.

The hourly chart illustrates the range-bound market:

The Dow Jones Industrials (INDU) are also still within the range, for the moment.

Many weeks ago, I cited the Dow Industrials Bullish Percent Index (BPINDU, which is a breadth indicator), and mentioned why it favors the bears intermediate term.  BPINDU's past history continues to suggest that a new low below 1266 is probably in the cards. 

Note that two sell signals have occured recently:

1.  The index crossed beneath its 10 day moving average on a closing basis.
2.  Daily MACD has crossed back down for the first time since the rally started, suggesting the rally may finally have ended.

And finally, a big picture chart of gold, which continues to coil, and should be getting close to springing a sustained intermediate move; direction to be determined by the break.

In conclusion, I remain intermediate-term bearish.  Due to a number of factors (including BPINDU), it currently appears that this leg down might finally be kicking-off the real deal -- however, due to ambiguity remaining in the charts, until the key levels break, I'm still cautious, especially over the short-term; and even over the intermediate term to a degree.

Once the market begins breaking from the range directionally, I will calculate more in the way of intermediate price projections.  First things first, though, and there are still key levels to claim for confirmation -- so at the moment, I'm not showing much in regards to intermediate projections because I don't want readers so focused on the "next step" projections that they forget to pay attention to simple basics, like key levels and trendline breaks.  This apparently happened recently, so I'm trying to learn from that and compensate for human nature.  Trade safe.

SPX and NDX: Chart Noise Reaching Deafening Levels

Yesterday started off looking quite bearish, but the SPX bounced off support and only closed down about 12 points.  The market is still range-racing at the moment, and while it appears it may finally be setting up for a big move, there are a lot of questions as to the market's intentions over the short-term.

As discussed several times previously, I remain in favor of the more bearish intermediate position, but the pattern at present has become more than a bit ambiguous.  Until bears (or bulls) claim some key levels, it's going to be difficult to predict this market more than a few hours ahead of time.

In this type of market, it's more important to pay attention to key price levels than it is to pay attention to the wave counts. 

Please read that sentence again, and don't be surprised if things go differently than the numbers or letters on the charts suggest.  The counts are far too noise-filled at the moment to be reliable -- breakouts or breakdowns are now needed in order to clarify, and I would doubt anyone who tries to tell you otherwise.

The first chart I want to share is the short-term Nasdaq 100 (NDX).  The recent decline could be viewed as an extended fifth wave decline, or as an abc decline -- one of these two interpretations seem to make the most sense, and the chart explains the reasoning behind the the labels for a fourth or b-wave.  Due to the noise level, it could also be viewed as a third wave with wave 4 up unfolding now, and wave 5 down still to come.  As I said, don't invest too much faith into the short-term counts at the moment.

Last week's bullish trade trigger played out perfectly, for those who took profits when the target level was reached.

The next chart is a longer-term NDX, and I'm sharing this for discussion purposes only.  It simply allows a glimpse into my reasoning as I wrestle with these ugly charts (for way too many hours lately) each night.

This chart is labeled bullishly, but I'm not favoring that count -- I'm simply presenting it to show readers why I'm not currently jumping up and down and yelling that the world is guaranteed to end tomorrow.  I have never stopped favoring the bearish count (apparently there was some confusion on this matter last week), though I do frequently look for ways to poke holes in my own biases, and watch for things that might serve as warnings to re-examine the outlook.

NYA is currently channeling.  The first stronger confirmation of a bearish wave in progress will come with a solid breakdown from the red base channel.

The SPX intermediate chart shows that the preferred count has so far played out very close to perfectly, though as noted did fall about 11 points shy of the "ideal" target.

The SPX short-term chart is below, and is just as ugly as all the rest.  There's a bearish sell trigger outlined, but do note that the expectation of that trigger has been adjusted recently to suit the current chart.

Friday's breakdown from the short-term black up-sloping channel served as an early warning to bulls that the uptrend had ended. 

The 1390 target for the wave counts is getting close to falling off the table as well, and as I stated yesterday, it appears that the bear count likely peaked at 1380 -- 10 points shy of the target zone.  I continue to view 1380 as the stop zone where the intermediate bear count would need to be completely re-examined.  Unless and until that level is claimed by bulls, the bear count remains favored.

In conclusion, if the bear count is indeed unfolding, then the SPX should probably not trade markedly above 1380 going forward, and the bears need to start claiming some key levels and holding those levels.  Claiming 1340 +/- on a closing basis would be a good start.  This is the best chance bears have had in some time, so it would appear the game is now theirs to lose.  Trade safe.

Copyright 2012 Minyanville Media Inc.

SPX, RUT, INDU, BKX: Can Bears Take Control Here?

For several weeks, my target of 1390-1405 has been out there, and despite Friday's sell-off, it has not quite been negated.  However, the bulls need to hold the market above 1357 to maintain that target zone.  Another day like Friday would negate that target, but ironically, would actually increase the bullish potential of the pattern if the recent highs are subsequently broken after another sell-off.

This 6-week trading range has wreaked absolute havoc with the charts, and while a lot of different potentials have developed (some of them bullish, which were discussed last week), as I've stated, I'm going to remain in favor of the bearish intermediate count until the market proves otherwise. 

Neither the bulls nor bears have been able to get much accomplished lately, at least for more than a week or two at a time.  I suspect that picture is getting close to changing, and that a sustained move is at last getting ready to unfold.

As I see it, there are really two main options from here, however, I want to clearly state that I think it's a mistake to get too married to either expectation at this point.  In other words, be cautious and protect profits until the market breaks out of this range. 

The two options I'm seeing are diametrically opposed.  We'll discuss the bear option in more detail, but the bull option needs to be watched carefully.  The contrarian in me actually wants to favor the bull option, but I'm not ready to shift footing because the charts have played out well for the bear view, and haven't yet screamed for the bull option to play out. 

And, as I explained clearly, as recently as Thursday:  "before we go further, let me state for the record that I am not turning bullish -- yet."  This still applies.  Please don't mistake my expressions of cautiousness about the bear case as bullishness. 

Option 1, the Bear Option:  The wave (ii) rally is finally over.  After studying a number of charts, I've come to the conclusion that if that bearish count is to play out, it probably can't support a run much higher, and we can probably assume that the top is in at 1380 on that count.

Supporting evidence is what appears to be a triple zigzag on the INDU.  The recent rally counts very well as 3-waves up on INDU.  A move back above the (z) wave high -- especially one that started from below the final (a)-wave low -- would blow this count up, and turn the rally into a bullish nest of 1's and 2's.

Short-term INDU:

The RUT shows that any significant downside from here will break the uptrend that started in early June, but as warned, things can be whippy inside a trading range:

BKX did form the wave up that I was looking for to "balance" the pattern, and has now retraced so deeply that it should be considered a new wave down, as opposed to a sub-wave of the current blue C wave. 

The BKX chart offers some brilliant clues, because the pattern here is either very bearish or very bullish, and there are clearly defined lines that separate the two options.

Let's pay close attention to what happens in BKX going forward.  A break of the B-wave low is required to confirm both counts that are shown.  The chart explains the rest.

I've gone 'round and 'round with the SPX short-term chart, and it's another market that's not telegraphing very clearly.  The recent rally could be counted as a five-wave move with a disproportionately small fifth wave -- so that could be all she wrote for the C-wave.  Alternately, the peak was wave 3, and the current decline is 4.  Trade beneath the wave 1 high would rule that out.

On Friday, I was looking at the possibility of a fourth wave in progess.  While that count wasn't invalidated as of Friday, it's entirely possible I was incorrect in that assumption -- which is one of the many reasons I warned that the "easy money was over" and, especially: "I don't like banking on fifth waves." 

The black alternate count allows the possibility of a 2nd wave decline unfolding here.

If we plug that 1-minute count into the hourly chart, we end up with the chart below, and it suggests that wave (ii) may indeed have ended.  Blue wave C did make a new swing high above A, and that's all it was required to do.

The chart also shows Option 2: the bullish alternate count that this is a nest of 1's and 2's.  That count would require a powerful and accelerating breakout to occur at some point going forward, and that could be triggered on a break above the 1380 high -- these halting little breakouts we've seen so far don't qualify. 

Option 3-20 are that something else entirely is going on, but the two options shown appear to be the most likely.

In conclusion:  At this point, bears probably have the best chances they've had in a while.  I think the counts have aligned as well as they can for the bear case, at least given the unbelievable amount of noise in the charts.  Anything other than a marginal new high could very well blow up the bears' intermediate hopes, so I'm going to consider 1380.39 as the stop level where we take a hard look at reassessing the entire intermediate bear outlook.  I continue to believe the market is gearing up for a big move -- and this confusing pattern is part of the "plan."  And when I say "big move," I'm not talking about a 30 or 40 point run at the bottom of the range that gets bears salivating right before the market rips their faces off.  Bears need to remain aware that, given the current charts, that big move is not guaranteed to be down.

Barring a new high, I will continue favoring the bear count going forward -- and given INDU and BKX, if that bear count still holds any water, it should probably start performing more or less immediately. 

I think the BKX chart should be watched carefully for clues -- that chart suggests more downside short term, but also suggests it could very well be a bear fake-out.  BKX is another chart that suggests a big move is brewing -- so let's watch the levels there closely, and be on guard for a bottom forming in the target zone (which represents the expectations of the black alternate count).  Conversely, a breakdown there should give bears the all-clear for the intermediate term.  Trade safe.

SPX, Oil, NDX, CVX, COMPQ: This Round of Easy Money is Probably Over

The market turned into a sloppy mess yesterday, and the preferred count continues to suggest that more upside is likely in the coming sessions.  This leg of the rally has now completed a very nice 3-wave form, which is where the easy money usually ends (with the peak of wave 3 or c -- assuming it has indeed peaked). 

In fact, traders who followed the NDX chart I posted waaaaay back on Wednesday captured an easy, draw-down free, 50 points of profit ($1000 per NQ contract).  Here's the updated chart, which I really like for the clarity of its waves:

In looking at the chart, one can see why I consider third waves to be "easy" money.  I could be cute here and do a Three Things I Like About Third Waves:

1.  There is usually limited drawdown in a third wave (sometimes zero, such as in this example).
2.  The targets are usually pretty clear, and are usually hit.
3.  The end of the third wave is where the possibility of a c-wave comes in -- meaning there might not be any more upside (or downside).  Personally, I don't like banking on fifth waves, partly because fourth waves are usually the Ultimate Trading Nightmare (almost always loaded with whipsaws).

But I hate cutsie stuff, so I won't do that Three Things About Third Waves gig. (?)

What makes third waves challenging for some traders, especially the inexperienced, is that third waves virtually always require you to buy when the prevailing sentiment is bearish, or sell when the prevailing sentiment is bullish.  There is a lot of fear at the beginning of a third wave up; and a lot of euphoria at the beginning of a third wave down.  Some traders have trouble taking action against that, because the majority will always be on the wrong side of the trade, strongly doubting the move and telling you to either sell it or buy it (whichever is wrong; depending on which way it's going).  Ironically, that's what gives third waves their strength.

This is also why I'm watching this market carefully here, for signs of what's bullish and bearish.  The next wave will likely be a third wave (due to the market's position, it will be a third wave up or a third wave down), but a much larger third wave -- and we don't want to get caught on the wrong side of it.

In any case, I consider third waves my bread and butter, and I strongly suggest learning how to recognize and trade them.

Going back to the charts: what long-term bears do not want to see immediately here is a top.  A top from this level would almost certainly indicate that the recent wave up was wave b of an expanded flat, which would mean a solid decline (nice for short-term traders), then a much bigger rally.  I've outlined this as the second alternate count, in green on the intermediate SPX chart (below).  I don't view that option as terribly likely here, but one never knows -- and it would make for the ultimate head-fake to both bulls and bears...

The SPX short-term chart is below.  Where to place the top of the current (3) (if it's topped) is more than a bit ambiguous on the 1-minute chart, so I just keyed off the NDX and went with the price high.

CVX has developed an interesting pattern, and it's one of those patterns that makes you just want to turn the chart upside down and throw darts at it.  It's either an abc up, or an abc down.  Both patterns suggest a very strong move is brewing, but it won't be 100% clear which way it's headed until after it starts breaking.

Oil also suggests some more upside is probably due:

And the Nasdaq Composite also suggests another leg up due... barring the 2nd alternate, of course. 

If and after we get that next rally leg, then that will be where we find out who's for real. I'm largely expecting the market will head up toward the preferred count target zone, then it will probably retrace back toward the breakout level. What happens from there will be critical to both bulls and bears. A solid whipsaw will indicate the bear count is probably on the way... but a successful back-test will mean a powerful rally coming.  The good news is: along with both options comes the next round of "easy" money.  Trade safe.

SPX and RUT Updates: A Discussion of the Intermediate Bullish Potentials

One of the worst fears of any analyst or broker is turning bullish right at the top, or turning bearish right at the bottom.  Believe me, just the thought of it gives all of us nightmares, and causes us to awaken in a cold sweat, screaming like we were Jim Cramer.  So before we go further, let me state for the record that I am not turning bullish -- yet.  However, the charts are starting to display a number of potentially bullish breakouts that simply shouldn't be ignored.

Now, the rally has played out more or less as I've been expecting for the past month and thus clearly still fits the criteria of the intermediate bear view.  It would be silly of me to suddenly turn bullish here, when the market has done essentially what I thought it would.  But, as I've said before, the reality of the market is all about potentials and probabilities.  And the reality of analysis is that the charts only allow us to see a certain distance down the road.  In any case, the potential is simple:  if the bears can't make a stand where they need to, then this becomes an extremely bullish pattern.

The alternate bearish short-term count was invalidated yesterday (and, thankfully, so was the triangle!) -- so this leaves the preferred count as, effectively, the bears' last (decent probability) hope.  The preferred count has been anticipating a rally up toward the 1390's, and that appears to be unfolding.  What happens over the next few weeks is very likely going to determine direction for many months to come. 

If the bears make a stand in the near future, then an ugly decline awaits.  If they don't, then it's off to the races. 

It's currently unlikely that there's an "in-between" option, but as always, the market reserves the right to alter that outlook.

If the decline shows up, then bulls will come up with reasons to buy into it the whole way down.  Conversely, if the rally shows up, then bears will keep pointing to something ugly (and there's lots of ugly!) and short into the teeth of it the whole way up.  I don't wish to be either one of those traders, and neither do you.  So let's stay aware of the potentials, see what happens next, and then try to profit from it. 

The first chart I'd like to share is interesting, and seems to cast some doubt on the current rally, while at the same time casting some doubt on the bear view.  What should give the bulls pause is the narrowness of the rally: it currently isn't broad-based at all.  What should give the bears pause are the numerous markets either breaking out from bullish basing patterns, or about to do so.

(To bring up the full-size chart, right click and select "Open in New Window")

   

The second chart is the SPX daily, and shows the market again bouncing along the underside of the median channel line.  Sustained trade above that line would be intermediate-term bullish.

In this hourly chart, I have labeled the alternate bullish view.  Going all the way back to when the market topped in March, I noted (at the time) the apparent three-wave rally that capped the top, and it has bothered me ever since -- at least, from the standpoint of the intermediate bear view.  A three-wave rally leading to a top is almost always indicitive of a corrective decline (in other words, a counter-trend decline).  There are ways around it, but it's still there in the charts...

I have also labeled the 15 minute chart with the alternate bullish count.  Note there is an interesting pattern that's formed here, and it provides what may be a critical clue -- it can be seen with the labels on the recent move: 1-2-3-4, and black i-ii.  This is a third wave rally under any interpretation -- either C or (3) -- and if it's the bullish (3), then the third wave of the third wave should not be dying like this.  In other words, the sub-minuette first wave (blue 1) probably shouldn't be longer than blue 3.  The bullish i-ii nest (in black) would explain it -- the chart annotation at the bottom details this.

Finally, a simple short-term RUT chart that contains a note about the recent form of the rally and a trade trigger.

In conclusion, the market has behaved largely as expected for the past month, so there's no reason for me to suddenly abandon the bear case here.  But at the same time, I think we have to stay aware of the possibility that, with just a few shifts in the market, the tide could turn strongly in the bulls' favor.  Trade safe.

SPX and NDX Update: Market Set Up for a Good-Sized Move

Yesterday's outlook came within 1.68 points of being "perfect," but missed the morning target by, well, 1.68 points.  The remainder of the day couldn't have played out any better, though.  A picture is worth a thousand words, as they say, so below is just a quick look at yesterday's projected market path.  In reality, the market rallied up to 1361.32 (1.68 short of my first target), then reversed back down to support at 1345 (as suggested), then rallied right back up to resistance at 1365.  Certainly a number of traders on both sides of the trade got burned by the double-whipsaw, but they could have saved themselves a lot of anguish (and probably money) ahead of time by simply studying the chart I published yesterday (yesterday's chart below):

(For new readers, do keep in mind that my projections are never intended to be time-accurate -- I only project price, and then I simply work within the available space to try and keep things legible.)

Certainly every day doesn't play out as perfectly as this, but over the past couple weeks, many of the short-term projections have played out this well.

So where are we now?

Well, the market has provided what is, in my view, a glimpse into the potential for a solid directional move.  It has set up a bullish and bearish trigger point, and whoever claims their key levels first should gain a decent victory. 

The bulls, quite simply, need to break out solidly from the 1367ish resistance zone.  If they can do that, there are good odds of a run into the 1390s or even the 1400s.

The bears need to reclaim 1345.  If they can do that, then that would break the up-facing wave which launched during yesterday's session, and the market should be cleared for a run down to at least 1320.

Using the Nasdaq 100 (NDX), I'd also like to share why it appears that the move up is either the start of something larger and bullish, or the end of it.  The key level bulls need to hold on NDX is 2554.

The SPX 15 minute chart highlights some bullish and bearish trade triggers.  If the bull count is unfolding, a retrace to roughly the S1 area would be reasonable.  If the bear count is unfolding, the top is probably in (or very close).

The SPX big picture view (below) currently highlights the bullish short-term targets -- contingent of course on the bulls breaking out here.

Yesterday, I talked about the potential of a triangle forming in the Dow Jones Industrials.  Until the bulls overtake the SPX 1374 high, this triangle remains possible.  In a triangle, each wave is usually formed by an a-b-c correction.  A very common relationship in Elliott Wave is the relationship where wave c is equal in length to wave a.  So, with that knowledge, look what happens on the SPX chart (below) if we extrapolate that common relationship... we end up with a perfect symmetrical triangle. 

Nobody likes ambiguity, least of all me (it always means I have to draw extra charts), but unfortunately, the market is often a place of great ambiguity.  It often pays to be aware of the potentials that aren't really black and white, and not get become limited by only thinking "inside the box."

In conclusion, the bulls appear to have the upper hand, but aren't quite in the clear yet.  The market is sitting just under key resistance, and bulls need to make a clean breakout to keep their short-term hopes alive.  If the bears are going to make a stand and turn things back down, this is where they'll do it.  The good news is that what happens over the next few sessions should clearly point the way for the market's next decent move.  Trade safe.

SPX and INDU Updates: Current Market Snapshot Allows a Bullish Potential, at Least for the Moment...

Monday's market appeared to consolidate into a small triangle, and this type of action is usually suggestive of follow through still to come.  Short-term, there's a reasonable chance that the S&P 500 (SPX) will rally up to test the 1363-1367 resistance zone, and this lines up well with the potential target for a (small scale) triangle breakout.

There is an interesting, and very bullish, big picture potential that has developed, and I don't think it's something that should be ignored.  One of the reasons I've remained in favor of this rally ultimately resolving with lower prices has been the corrective appearance of the waveform.  In Elliott Wave Theory, corrective waves move counter to the direction of the larger trend, and thus a corrective rally usually suggests the trend is down.  However, in an Elliott Wave triangle, all waves, both up and down, are corrective.  A true Elliott Wave triangle is different from a market move that is "triangular in appearance" -- and an Elliott triangle is always a continuation pattern.

The market has now opened up the possibility that the rally is part of a large Elliott triangle.  This would allow it to be corrective without being counter-trend.  This potential presents best on the Dow Jones Industrial Average (INDU), shown below.  I am going to keep this as an alternate count for the time being, but I believe this potential needs to be watched carefully going forward -- because there are a lot of points to be captured by trading it correctly, if this is indeed the market's intention.

Trade beneath the blue (C) wave low would help rule this out -- but it would not completely rule it out because the (C) wave low has not yet been established as absolute.  At present, trade beneath the (A) wave low would completely rule this out.  In the meantime, the short-term wave structures will provide more clues and absolutes as they unfold.  Depending on what the market does next, this option could disappear in a few sessions -- but right at this exact snapshot moment, this option is fully on the market's table.  It appears lower probability, but it would be less-than-intelligent to completely ignore the potential at this time.

Note that this chart suggests a different outcome, both short and long term, than the double zigzag (or double three) correction does.  This is an alternate count, and if the double-zigzag I've suggested as the higher probability count plays out properly, we should have some success in eliminating this option entirely.

In any case, I feel obligated to point it out, since it's there in the charts right now.

The INDU 15-minute chart helps show why there are now several options on the table: the market's done nothing but trade sideways in a tight range for about a month.

The SPX 5-minute chart is suggestive of higher prices over the short-term, but can be traded either way, depending on how it breaks.  Based on the smallest subwaves, it is not entirely clear whether this is a true Elliott triangle, however, if the market breaks upwards, the short-term breakout target lines up well with more significant resistance (as seen on the next chart).  Note that the triangle could still be under formation, and another up/down sequence  within the red trendlines would still fit the pattern. 

The SPX hourly chart shows the 1363-1367 resistance zone is of some significance.  It bears reminding that 1363 is the 61.8% retrace of the larger down-leg.

Little has changed on the 15-minute chart.  Monday's market found support right at my S1 level.

In conclusion, the short-term suggests higher prices, but can be traded whichever way it breaks.  The big picture option that has now taken shape bears careful watching over the coming days and weeks... but for the time being, this new big picture option remains a lower-probability alternate count.  Trade safe.