Tuesday, July 17, 2012

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.

1 comment:

  1. Nicely targeted, especially if the SPX goes down tomorrow.  I personally am targeting 1395 by the 27th, but that's just me.