Monday, October 8, 2012

SPX, NDX, INDU: Did Bulls Drop the Ball on Friday?

Bulls had every opportunity to get things done on Friday, but failed to push higher on the better-than-forecast job report.  The market performed properly for the very short-term count, but not quite as-expected for the next higher degree wave count.  Certain corrective waves can only be anticipated in real-time, since they sometimes form a complete fractal (which leads one to believe they are over), but then go on to string together a couple more fractals before actually finishing.

Near-term prospects may now be shifting into the bears' favor, so I've outlined a series of key levels to watch on the S&P 500 (SPX).  Be aware that until 1450 and 1439 are claimed by the bears, we can't rule out new swing highs following directly, and trade back above 1471 from here would suggest bulls have several more sessions of strength left in them -- if not more.

Due to the fractal nature of Elliott Wave, this pattern leaves a number of potentials open at the moment, so let's take a look out across a couple more markets before coming back to SPX.

The Dow Jones Industrials (INDU) is suggesting that -- again, assuming new highs don't follow directly -- the current wave is (at worst) part of a larger correction, and new swing highs should ultimately follow.  Depending on what happens next regarding the important price levels, though, bulls may have to wait a while and endure some drawdown if they're not nimble.

As I mentioned last week, a number of markets appeared to be running at cross currents.  NDX is one such market, and has been much weaker than INDU and SPX (chart below)...

Bears should be aware of the fact that if NDX has completed a five-wave structure at red degree, it may have formed a long-term top... or it may only be entering a second-wave decline, to be followed by an explosive rally.  We'll have to see how the structure develops from here.

The big picture SPX chart shows one possibility that appears reasonably likely at the moment -- again, watch the key levels outlined in the first 3-minute chart to help determine if new highs are coming more directly.  The blue path shown below comes into play only if the key levels are broken by the bears.

The SPX trendline chart -- so far, still no key breaks by bears here.

Finally, because the decline appears to be three waves, and the rally appears (so far) to be three waves, there is still the potential for a large triangle to form in this position.  I can only speculate given the current wave structure.

In conclusion, the market is likely to see some near-term weakness, and the key levels outlined should give us clues as to how deep that weakness will run -- basically, it's "up until proven otherwise."  And in any case, it is currently expected that any such near-term weakness will ultimately resolve with higher intermediate prices.  Trade safe.

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