SPX, INDU, and Employment Updates: Looks Like the Shoe is on the Other Hand Now!

No one can deny that many indicators look bullish right now.  The bears are rapidly running out of real estate, and the Dow in particular is within a stone's throw of making new highs.

However, the burden of proof is now on the bulls.  Anybody can run the market back and forth in a trading range, but until it breaks out, it's just range racing.

It's worth remembering that things looked fairly bearish a week ago, but bears failed to get it done when they needed to, as discussed on April 22:

I think one of the key trendlines right now is visible on a longer-term chart, and it's not too far below the current market. If that red trendline breaks, the market could start the next big leg down. If it doesn't break, the market should continue to bounce higher.

Bears were unable to break the red trendline, as shown below, which did indeed lead the market to bounce higher. 

Now the market has reversed roles, and the onus is on the bulls. Things look fairly bullish (as they looked bearish recently), but the bulls now need to "prove it" by making new highs. Until they do, the danger of a bearish reversal can't be ignored.

The Dow chart illustrates the levels a little more clearly.

There are a few different ways to view the rally on this chart.  The bearish view basically needs a top immediately.  The bullish view suggests another new high, which would also invalidate the bear count.  It seems reasonable to assume that if the bulls get a new high, then that will probably mark wave (1) of the larger (v) and at least a couple weeks of new highs would be forthcoming.  It's also possible it would mark ALL of (v), but that seems less likely at the moment. 

The SPX looks like it either has formed, or is very close to forming, at least a short-term top.  It's completing either its C-wave or first wave up.

Zooming out a bit, the SPX counts look like this:

The advantage the bulls have, of course, is that they are continually backstopped by the Fed, whose goals of making the dollar worthless have, thus far, largely been successful.  A worthless dollar makes everything else worth "more" in dollars: from stocks to precious metals, to oil/gas and food.  So it seems like things are going up in value, when in actuality the dollar is simply going down in value.

In reality, it's a zero-sum game that only damages the American public with higher prices.  The upside is that we all "feel better" about things while they're doing it. 

However, I propose that the Fed should at least buy us all a nice dinner.  And I'm talking about a good restaurant, no greasy spoon joints.  I think this is only common courtesy, as the majority of us Americans appreciate being taken to a nice dinner before getting royally screwed.

Of note, the Fed recently announced a new motto, which I think is a sad, but excellent, example of Truth in Advertising:

The Federal Reserve:  Saving the World Daily by Destroying America

I'll stop ranting about the Fed now (until next time!), but it's hard not to get depressed about this stuff from time to time.

Segueing back to the market:  There is an interesting psychology that's developed among bulls and bears alike regarding the Fed.  The bulls have been backstopped for so long, that if/when that safety net ever goes away -- or fails to work -- I wonder: how far will the market fall before the masses realize it's not working anymore? 

And what will happen then, when they do realize it no longer works?  I doubt it will be pretty.  It will probably resemble a first grade fire drill, with everyone rushing about chaotically, failing to take their "place" in line, and most making a mad dash for the exits completely out of order. 

It's hard to say with any certainty how far away that day is... it might be next week, it might be next year.  But it does seem that, at some point, this fiat fiasco must end.

Along those lines, another interesting chart I want to call attention to the euro/dollar.  Euro/dollar has some pretty serious intermediate and long-term resistance not too far overhead.  Again, the onus here is on the bulls to break out.

I'd like to end this article with a couple charts and comments from my friend Lee Adler at the Wall Street Examiner.  Lee's comments in italics below:

Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.

Here's why it's mind blowing. I've plotted it below on an inverse scale with the S&P 500 overlaid.

That speaks for itself. As the improvement in claims has slowed, so have the gains in stock prices.

I found this data quite interesting, since it fits with both counts quite well.  Sometimes we get so focussed on the short-term that it's easy to lose the big picture; the counts are really just nit-picking in the grand scheme of things.  Assuming the SPX drops back below 1000 at some point in the future, what's the practical difference if the top was at 1422 or 1452?  Trade safe.

SPX Update: Bears Need to Get 'er Done, or Go Home

Yesterday's count expected further upside, which is what the market provided.  At this stage, there's just not much to add.  This remains one of the more challenging structures I've had to decipher in some time, but if the expanded flat interpretation is correct, the market should find a top in the near future.  If the alternate bullish count is correct, then the SPX is probably on its way to 1460-1470.  There's been little to add confidence to either direction. 

Viewed with a more traditional technical analysis eye, the market appears to be breaking out from a trading range/base, which would be considered bullish.  Of course, if the market does whipsaw back into that range, then it would not be a surprise to see it drop rapidly, as oft-traded ranges offer little in the way of support or resistance, except at the edges of the range.

The very short-term structure is extremely difficult to decipher, and the rally may be complete or nearly so, or may have another down/up left in it.  Watch for a bounce off the top of the old trading range.

One of the reasons I remain in favor of the more bearish count is the COMPQ, which appears to have formed a clear 5-wave decline.

It's worth keeping in mind that if this is indeed a larger second wave retracement rally, then bullish sentiment is to be expected. Second waves "want" to be bull markets.

In conclusion, there are no magic bullets that I can find at the moment.  At this point, it's up to Old Man Market to either prove or disprove the bear case.  If the preferred count is correct, then there should be a reversal brewing soon.  Trade safe.

SPX Update: Revenge of the Beard

This market remains a mess, though perhaps some semblance of order is beginning to emerge from the chaos.  Way back on Friday the 13th, I suggested that the market would form some type of "double retracement" due to the extended fifth wave.  What threw me off heading into yesterday was that it looked like we'd already had that double retracement.  Turns out the market felt we needed another retracement just for good measure. 

The market seemingly felt obligated to cheer on good old Uncle Ben yesterday and, no doubt, cries of "Win one for the Beard!" could be heard echoing throughout the halls of Primary Dealers everywhere.

It's vitually impossible to predict this type of market in advance.  To a degree, it can be predicted in real-time... but looking at charts from one day to the next, it's quite difficult to anticipate a correction of this complexity.

The mess at the beginning of the wave makes predicting its resolution somewhat challenging as well.  I'm inclined to believe this is a 3-3-5 expanded flat, as I mentioned yesterday morning.  In that case, it's nearly complete.  It may have a bit more down/up first -- my "perfect world" target would be 1397-1399 for completion -- but it's also possible that it completed yesterday.

There are two counts shown.  The count not shown is represented by the red box -- another repeat of the fractal within the box, to stretch the correction out even farther, is possible.

In the bigger picture, I still favor continued downside after this correction is complete (assuming that ever happens).  The alternate count remains as a possible bottom at 1357.  I view that as unlikely.

Yesterday pre-open, I mentioned that I believed the Euro/USD currency pair was forming an ending diagonal.  I wasn't sure if it was complete, or had one more wave up left in it.  Today, we got that wave up, and the pair has now formed what appears to be a complete textbook ending diagonal.  There should be strong selling in store for Euro over the near term.

This is a particularly good diagonal because that last wave up ran a ton of stops -- I watched it unfold, and actually played it on the long side.  Caught a few quick bucks as a momentum play, then I sold my longs to all the shorts who were covering.  But I imagine a lot of shorts will have to chase now, which should give it some fuel down.

Diagonals can be misleading, and it's still possible that the wave labeled v is actually iii, but in this case, that seems much less likely.

In conclusion, I continue to favor an ultimate downside resolution to this mess.  In a perfect world, this correction may or may not have a tad more upside left, but should be over fairly soon.  Trade safe.

SPX, COMPQ, and INDU Updates: Possible Reconciliation of Counts Across Markets

I've been trying to reconcile the counts across market, and may have found a solution tonight.  Each market gives a bit different appearance, and readers know I've referred back to RUT several times, which argues that the next low (assuming the market makes a new low) will most likely be a fifth wave and lead to a larger rally.  COMPQ seems to suggest the same thing.

A quick look at COMPQ first -- if the wave labeled as blue 4 exceeds the invalidation level, I'll consider switching it to the more bearish count of black 1 and 2.

Next, the INDU, which is much stronger in appearance than most other markets, and is giving the impression of a large triangle.

RUT isn't shown, as I didn't have time to update the chart, but readers can refer back a post or two for why I believe RUT's correction was a fourth wave.

So how to reconcile all these markets with SPX? 

Well, how about an expanding ending diagonal fifth wave?  This seems to fit not only the pattern, but the current patterns and expectations of other markets as well.  As such, this is my preferred count for SPX, shown in blue below.

The more bearish count, currently labeled as the alternate, would view the present decline as a nest of 1's and 2's.  We'll have to see if other markets invalidate their counts -- for example, if INDU invalidates the triangle, then we can seriously consider the mega-bearish 1-2 count.

For contrast, here's how the more bearish possibility would look.  Currently, this doesn't reconcile as well with other markets, but we'll keep watching to see how things unfold.  The appearances could all change tomorrow.  The alternate (iv) count still can't be ruled out, and might end up marking the next low (I view it as quite unlikely that the market's bottomed already -- too much overlap in the wave).

In conclusion, the market still has a few questions to answer to bring more clarity to the structure, but I'm still favoring the idea that new lows will be seen, likely this week.  Further, given what's in the charts at the moment, the ending diagonal currently reconciles all the markets fairly well.  Trade safe.

Morning open update -- not sure how I missed this earlier, but an expanded flat looks quite possible now:



SPX, RUT, COMPQ Updates: Bulls Running Out of Options

As I'm certain some of you read in the comments section, there was a death in my family yesterday, so I'm going to need to keep a bit lighter schedule through the remainder of the week.  My thanks to those of you who have expressed your condolences and kind thoughts.

Despite the challenges of my personal life, it's hard for me to simpy abandon "you guys" (my readers, male and female, of course) during what may well prove to be a key turning point in market history, so I have prepared a few charts and a brief update.  Two of the charts were completed before I got the bad news yesterday, but I also added an SPX chart because I know readers expect/rely on it more than the other indices.

Keeping things fairly brief, it does appear that the preferred count of the prior week is playing out.  There is still the option of another leg up to new highs, but given the strength of yesterday's sell-off, that now appears much less likely. 

The more relevant question appears to be in trying to determine the trend degree of this decline.  Both RUT and COMPQ seem to suggest that the recent rally was, in fact, a fourth wave at lesser degree as opposed to a larger second wave.  The meandering nature of the recent rally is also suggestive of a fourth wave. 

This would suggest that the current decline is the fifth wave of the larger first wave, which should be followed by a decent retracement rally (in wave (ii)), which will probably show more "purpose" than the most recent back and forth retracement rally.  Second waves are generally sharper and faster than fourth waves.

To illustrate why I currently view the recent rally as a fourth wave correction, and this as a fifth wave decline, here's the RUT chart, followed by the Nasdaq Composite.

COMPQ also currently counts best as a fourth wave correction.

For the sake of showing the difference, I've labeled the SPX chart with the rally as wave (ii).  Based on the evidence, I'm far more inclined to view the recent rally as wave 4 and suspect a larger retracement after this wave down is completed.  That is, of course, subject to change as the pattern unfolds more fully.

It's also possible that the current decline is simply wave (1) of 5 and will hit the target zone, bounce and then collapse again.  We'll have to reasesses this as it unfolds.

 

 

In conclusion, the more bullish alternate counts are beginning to appear less and less likely, though a blistering rally tomorrow could always force a re-examination of that view.  However, given what there is to work with in the charts today, new lows seem very likely to show up later in the week.  And, once new lows confirm, the broader message from the market will be that the larger trend appears to have turned -- not that this would be unexpected news to any of us, since we've been largely expecting that result for a while anyway.  Trade safe.

SPX, INDU, NDX Updates: Trying to Make Sense of the Mess

The charts are an absolute disaster right now.  I've looked at roughly 20 million charts this weekend, but there are so many possibilities, it simply becomes confusing to try and cover them all.  This update was a whole lotta work for very little tangible reward.  I looked at everything from NDX and COMPQ to SPX, INDU, BKX, and TRAN -- but there's nothing that jumps out as "this is the one!"

The market keeps us guessing at times, and this is one of those times.  At times like this, it's sometimes better to zero in on other indicators, such as trendlines and so forth.

I think one of the key trendlines right now is visible on a longer-term chart, and it's not too far below the current market.  If that red trendline breaks, the market could start the next big leg down.  If it doesn't break, the market should continue to bounce higher.

As I mentioned, there are literally too many options to list -- so I'm going to present my "best guess" short-term outlook and if it works, it works; if not, so be it.

First off, it does appear that the SPX formed an impulse down on Friday, so I would expect a bounce (which may have ended already, into Friday's close), followed by another impulse down.

Backing out a few degrees, here's what the best-guess counts looks like.  Again, if the market materially breaks the trendline mentioned in the first chart, then all bets are off for the more bullish count.  The bearish option is a very wild flat for wave (2).

The market has never allowed us to rule out the alternate wave (iv) count (meaning the last decline could have marked the bottom of wave (iv)).  The INDU has shown more strength than the other indices of late, and the potential exists that it's forming an ending expanding diagonal fifth (and final) wave.  This option is shown below, and would jive reasonably well with the SPX triple-zigzag bullish count shown above.

The other option, of course is that wave (ii) completed at the recent high.

Interestingly, the NDX looks like the weaker sister, no doubt due to Apple's recent fall from grace.  Unfortunately, this chart presents much the same mess as everything else, though possibly more so.  However, the alternate count in NDX calls for a rally almost immediately there, so what happens Monday should be telling.

It's always possible for NDX to decline while INDU/SPX rally, especially if funds decide to rotate out of tech and into blue chips.

A factor that's always worthy of attention is the upcoming Ben Bernanke Beard Expose, which occurs on Wednesday, though tickets went on sale last week.  Thanks to my new beard, I'm able to get in free as an exhibitor! 

Anyway, at 12:30 on Wednesday, the FOMC announcement takes place, during which Ben will tell us about all the "tools" the Fed has at its disposal -- including hammers, screwdrivers, and their latest addition: a belt sander.  He'll also probably tell us "no QE3 today!"  So maybe that's what the market's waiting on before it starts the next serious leg down.  The more bullish "best guess" count would fit a potential rally into Tuesday/Wednesday, so we shall see.

In conclusion, there's too much clutter in the charts to make a strong call right now.  I've done my best to present what appear to be the "most probable" short-term options, but still could very well be completely off, since I can literally count at least 7 other potentials without really trying.  We're simply going to have to see what happens over the next couple sessions to allow the short-term options to be narrowed down a bit, unless one of the two presented works out. 

In either case, it still appears quite likely that the whole rally is corrective, and should ultimately resolve with lower prices. Trade safe.

SPX Update: Shortest Update Ever

Today's update is going to be very short and sweet, due to time constraints I ran into with some family issues.

There are two reasonable ways to view the most recent action, as shown on the chart below.  The good news for bears is that the rally is almost certainly corrective, and should ultimately resolve with lower prices.

The question is more whether it will do so more directly, or if there's another run-up still left.

Here are the two most fitting ways to count the rally so far:

1.  It is a complete w-x-y double zigzag, and the next wave down has begun.
2.  It is an incomplete double zigzag, and yesterday's action completed the b-wave of said zigzag.

I've marked a few levels to watch on the chart. 

(Editor's note:  There's a typo on this chart -- red "3/c" should read "i/c.")

In any case, it is thus far extremely challenging to count the rally as an impulsive form.  If it's a motive wave, it would have to be counted as either a leading or ending diagonal.  It's very challenging to see it as anything overly constructive to the bull case.

In conclusion, the next wave down may be underway, and that's the interpretation I'm leaning toward -- although just barely.  Part of the reason I'm leaning that way is because the Euro has been rallying all night, and just tagged 1.32075... and I think it's now on the verge of a steep decline.  So I'm factoring that in as the final straw.  It's possible my Euro analysis is wrong, since I lack the market confirmation I need regarding a decline in Euro (no key overlaps yet), and so I may be factoring in something that isn't going to happen!  The equities decline could have been a b-wave, with c-up to come.  The key level for that argument would be 1390.46.  Trade safe.


ADDENDUM:

At the request of a reader, here's a quick breakdown of the correction that came on April 18 and 19.  This is why it can sometimes be challenging to figure out exactly what the market's planning -- it's virtually impossible to predict a wave like this in advance.

SPX, RUT, and CVX Updates: Additional Telling Signs in RUT?

Well, I've got good news and bad news.  The bad news is that the short term structure is an absolute mess.  The good news is: I think I've found the key to figuring it all out over the next few days.

"How?" I can hear you ask incredulously, as you scratch your head in wonder, possibly hard enough that your fingernails remove several layers of your scalp. 

Well, once again, RUT seems to be throwing off some key signals.  Yesterday, RUT overlapped the assumed wave (1), which means that the current wave up in RUT already topped.  Plus RUT is now sporting a pattern that, if it generates another wave up, would look an awful lot like a leading diagonal.  I think the chart below may be our Holy Grail for the next few sessions. 

As goes RUT, so goes the world?

The next chart is the 5-minute SPX chart, which would still look a little better with a new high.  It's also possible wave c of (y) topped.  It's nearly impossible to say, given the short term charts, which look like a child's drawing of a bamboo forest on a really windy day.

It's also time to update CVX.  The original battery of CVX charts can be found in this article from March 18 (Why I Haven't Yet Joined the Long-Term Bull Camp).  CVX also would look better with another wave up, since the decline yesterday appears corrective.  The only thing that bothers me a bit about CVX's chart is the current expected shallowness of the retrace rally.  It would not surprise me to see CVX do something unexpected to deepen the retrace a bit.

Next is the 60-minute CVX chart.  I've noted the possible target a bit differently on this chart.  We'll just need to see what happens over the next session or two.  For now, based on the smallest waves, 104.50 +/- seems like a pretty good target area.

And finally, since there isn't a ton to add to the short-term SPX outlook, here's a big picture count that I've been playing with and tweaking for a while now.  I wanted to share this because I've never seen a count exactly like this floated in public, and I find the possibilities intriguing.

The alternate count for this chart would also move the wave iv bottom to the recent lows.  This would still maintain the ending diagonal form.

In conclusion, there appears to be a little more upside due for SPX -- but that's just a best-guess.  Of note, if RUT makes a new high, I will probably shift everything onto a more bullish intermediate footing (though not necessarily a short-term bullish footing) -- but I will of course need to see how it looks across markets before doing so. 

The upside for traders is that if RUT invalidates the preferred count, and is forming a leading diagonal, there's usually a deep retrace in the first big correction to allow bears to exit and bulls to buy the dip.  However, unless and until that new high happens, the more bearish intermediate count remains preferred.  If the more bearish count is correct, a big decline should unfold soon.  Trade safe.

SPX, RUT, and INDU Update: Trying to Reconcile the Contradictions...

Yesterday's alternate count came to pass, and hopefully readers heeded my warning regarding the red trendline and protected profits.  There are certain things I take for granted as "common knowledge" and I sometimes fail to expand upon certain statements for that reason.  It was brought to my attention that the following annotated chart might be helpful to some readers.

When I make statements like one made yesterday: "watch the red trendline for clues" -- this is the type of watching I'm talking about.

The chart also contains the updated count, though I'm now on the fence as to whether it's wave 4-up or wave (ii)-up (see Dow chart) -- but it's largely irrelevant at this stage.  More relevant is the fact that it's possible that ALL OF wave (y) completed yesterday, due to certain things I'm seeing in other indices (such as the Dow Industrials).  Yesterday's target was 1393 -- it's possible that 1392.76 was close enough.

There is a bit of confict among indices.  I've previously mentioned the RUT and how it doesn't count well as a complete five-wave move down.  Here's that chart again, along with the updated count. 

So the RUT appears to be in a fourth wave correction (or starting a new leg of the rally). 

Contradicting the fourth wave interpretation is the Dow, which does count best as a complete five-wave move down.  If the current rally remains as a corrective 3-wave move, then that makes the rally a larger second wave up.  Which means, if that interpretation is correct, then a big sell-off should follow in the third wave down.

Basically, the big challenge now isn't about whether the rally is a fourth wave or a second wave -- because both of those lead to lower prices.  The big challenge is whether it's a corrective wave (of some variety) or the start of wave (v) up.  The knockout level for the corrective rally (which ultimately leads to new lows) is the previous yearly high. 

It's not really possible to definitively sort one count from the other at this stage, because the rally has formed only 3-waves up so far.  So it could be a-b-c (or w-x-y), or these could be the first 3-waves of a new impulse up.

I'm continuing to favor the more bearish count by a slim margin for the time being, largely because the first portion of the rally in SPX counts much better as a 3-wave rally, which suggests that the entire rally is corrective.

But here's one thing that can't help but bother me:  the conundrum between the RUT and Dow can be resolved -- if one counts the RUT as a 4th wave (an a-b-c) down.  So the counts all work together just fine and dandy if we count the decline as a fourth wave with wave five up still to come. 

Now, this isn't to say that they don't work when counting them more bearishly -- if they didn't, I would throw the bearish count out.  But it's a little cleaner factoring everything together if we count the decline as a correction. 

So maybe that's the answer -- but I'm not ready to see it?  Maybe you are -- I'll leave it to the reader to decide.

The market rarely makes this easy.

I've marked a number of levels to watch on the various indices which should give us some clues.  Basically, if this is a corrective rally, it needs to remain as a 3-wave form.  Overlap at certain levels would help to guarantee that.

In conclusion, there's nothing in the charts right now to rule out either count, and both remain quite viable.  Based on the current overall appearance of the structure, it looks pretty good and counts very well as a corrective rally with new lows to follow.  I remain in favor of this interpretation for that reason. 

If that's correct, and this is a 2nd wave rally, then the market should be on the verge of a strong sell-off.

Conversely, and running in complete opposition, the more bullish count would have the market on the verge of a strong rally (since it would view the rally as a nest of 1's and 2's).  Preliminary targets for the rally interpretation would be in the SPX 1450-1470 range. 

The one thing that seems fairly certain is there's a strong move coming soon enough, one way or another.  We should be able to sort those two options out over the next few sessions, by keeping an eye on the key levels. Trade safe.

SPX Update: A Dangerous Position for Both Sides of the Trade

Yesterday's action removed some short term options from the table, but has still left the pattern open to interpretation.  It appears that I had Friday's decline labeled properly as an impulse wave, but that doesn't tell us with certainty whether that impulse was wave 1 or wave a. 

As I've been warning for a few days, I believe bears need to remain very cautious right now.  I'm still quite leary of the (x) wave count. 

Below is the 1-minute chart, which shows the difficulty in nailing down a count with any certainty.

Next is the 5-minute chart.  I'm almost equally split on the odds between wave 5-down having started, and the (x) wave count.  The chart shows the expected outcomes of whichever count is correct. 

If the wave 4 label is correct, then the market should not sustain trade above the red trendline.  If it does so, then suspect that the (x) wave count is playing out.

And finally, the big picture alternate.  It still remains possible that wave (iv) bottomed, though this seems decidedly less likely now that the 1367 price point has been overlapped and locked-in the view the the move from 1357-1388 appears to be a 3-wave form.  I'm more worried about the (x) wave count -- especially since the extended fifth wave practically begs for that count to play out.

In conclusion, I feel the market is in a somewhat dangerous position for traders who end up on the wrong side right now.  There's some room to run in either direction, and there's little help from the market in sorting the impulse count from the (x) wave count.  It's a tough enough call that I'm basically equally divided between the two counts.  I've labeled the (x) wave as an alternate simply to sort each count out.

Beyond that -- from my point of view, since I continue to believe this is the fifth and final subwave of wave (i) down, there should be a big bounce lurking in the shadows soon.  The question is whether the market makes the wave (i) bottom directly, or runs up quite a bit higher first.  If the (x) wave plays out, I doubt bears want to hang on for dear life waiting for it to end.  Trade safe.

SPX, RUT, Apple, and Beard Updates: Why I'm Not in the Same Camp as Most Wavers Right Now

Beard Update

Ever since this article, where I discussed my ground-breaking decision to venture into the beard-bearing biosphere of Ben Bernanke (by not shaving), I have received e-mails from anxious readers demanding beard updates on an almost-hourly basis.  For example, this recent letter comes to me from Little Bobby of Arizona, TX:

Dear Mr. Logic,

Or should I call you Pretzel?  Whatever -- just please don't refer to me as "little" Bobby if you publish my letter.  I saw you did that to that other guy.  I am 6'8", a linebacker, and I have a really bad temper. 

Anyway, I'm currently working on my economics degree at Texas Arizona University in Arizona, TX, and I aspire to one day be Fed Chairman.  While I appreciate your market updates, I'm really more interested in updates on your beard.  I'm wondering if you think I should grow my beard immediately, or wait until after graduation?  Is there any downside? 

I'm thinking I should grow a beard now, and study the Great Depression.

Thanks for your help,

"Little" Bobby Spankle, Starting Linebacker, TAU

Well, Little Bobby, I'm glad you asked, because I've just been "itching" to provide an update on the beard.  Ha!  Itching!  Get it?  That's just a warm-up into some of the first-class humor I'll be providing throughout this entire paragraph.

I'm sorry to make light of your serious question.  I know I'm the envy of every man right now, sharing a beard with Bernanke... but, not surprisingly, there is a dark side to this beard.  For example, many days I wake up with an almost-uncontrollable urge to print money.  Barely a week ago, I awakened from a fugue state to discover I'd printed almost 20 million dollars using only my inkjet. 

Luckily, I've been able to control these urges by plastering Ford-era W.I.N. buttons ("Whip Inflation Now!") all across my workspace.

But there are other side effects.  Yesterday, I tried to call my wife "Cutie-pie," but it kept coming out "QE-pie."  Try as I might, I couldn't say anything else, and I found myself repeating it uncontrollably: "Hi QE-pie. Hi QE-pie!"  I felt like Leonardo DeCaprio at the end of the movie The Aviator. 

I'm telling you this as a warning, because today I realized what the problem was.  Initially, I had kept the beard close-cropped and above the neckline -- but over the past couple weeks, I'd gotten lazy.  When I looked in the mirror today, I saw that the beard had expanded completely unchecked and grown to an alarming thickness, not unlike Michael Moore.  It was now reaching down across my neck, threatening to overtake my throat and choke the sense out of me.  I also discovered about eight gray hairs. 

Its tranformation was nearly complete.  The beard was trying to take over my face, and if I didn't act quickly, it would soon claim my soul.

I sprung, or possibly "sprang," into action.  After subduing the beard with a hot towel and a hammer, I was able to gain the upper hand long enough to use my electric razor to trim off half an inch "across the beard."  After that, its control was weakened enough that I was able to use my Gillette to shave off the entire portion beneath my jawline. Enough beard remained that I still ran out of the bathroom and handed each of my kids a hundred dollar bill... but the urge to print money was gone!

Later, as I rinsed out the sink, I heard what sounded like hundreds of tiny, high-pitched voices chanting.  They were progressively fading in volume as they washed down the drain -- but as I shut off the faucet, I was just barely able to make out their faint words as the last whiskers spiralled down: "Crush the dollar!"

Actually, Little Bobby, I just remembered: you want to be Fed Chairman!  Forget everything I wrote... the beard is perfect for you.

Market Update

Moving onto the charts, the market has left a lot of potentials open, and I hope it doesn't get too confusing for readers.  I've spent literally the entire weekend trying to sort out one from the next, and I'm reasonably confident in both my short-term and longer term preferred counts. 

I have outlined the alternates because, despite all the time invested, there's never a guarantee that the preferred count's right.  And this is a game of inches right now -- so it's easy to see one or more alternate coming to town.

The possibility of an (x) wave, while purely speculative, gives me a bit of pause in simply declaring the correction over without further consideration.  I could go the straight line route and pretend it's not a possibility, but I've seen these things happen too many times after extended fifth waves to blissfully ignore the potential.  Nevertheless, I do consider the (x) wave to be the underdog here.

The correction did form a complete a-b-c, and that's all it was required to do.  Trying to predict an (x) wave is akin to trying to prove the existence of dark matter -- there's little evidence for it before hand (except possibly in real-time, which no longer fits the dark matter metaphor... quit being so literal!).

At this point, I'm favoring the view that the (x) wave will probably not materialize, but I think it pays to be aware of the potential, because then bears get double credit, income-wise -- and at the same time lower their risk profile.

Of course, no one wants to leave money on the table if this is now the fifth wave decline.

So, the best odds at this stage will probably come from watching the red downtrend line shown on the charts below.  If the market sustains trade above that trendline, then it becomes more likely that the (x) wave is in play, and will go on to make new highs for the correction.  Luckily, this means that even the most passive swing trader who went short at the 1384 rally target presented last week should be able to guarantee a profit.  More aggressive traders can find other ways to lock-in profit.

Long-time readers know that I try to assimilate as many factors as possible into my analysis, to help sort one count from another.  To this end, the timing of a fifth wave (instead of an (x) wave) seems to fit well into the seasonality. 

Below is an excerpt from my friend Lee Adler.  In his Wall Street Examiner Professional Edition, he analyzes -- among other things -- tax data and the moves of the Treasury:

The markets get a gift in the coming week. Depending on how strong tax receipts are, the Treasury will pay down as much as $48 billion in expiring short term bills on Thursday. That’s cash that will come back to holders of the paper. They’ll have to put it somewhere. This is a normal feature of tax week, and some of that cash usually flows toward stocks. Tax receipts are looking a little stronger than last year, so that the paydown is likely to be substantial even if it isn’t quite $48 billion. That should be enough to put a bid under stocks by Thursday if not before as the dealers and other holders begin to anticipate this cash hitting their accounts on Thursday.

Last year the S&P gained about 56 points in the 7 days following tax day.

This would fit the fifth wave count extremely well, as it is likely to bottom this week -- and from there the market seems likely to embark on the larger 2nd wave retracement rally to match the seasonality.

Of note, this seasonality does also fit the bigger picture alternate count of the larger wave (iv) bottom, so this is yet another reason for bears to be cautious.

After studying the charts this weekend, and giving consideration to as much additional data as I could, I am favoring the fifth wave decline over the (x) wave and wave (iv)   Do remain alert to those potentials, though -- because the market often does the unexpected despite our best efforts. 

The chart below shows the preferred count as represented by the blue lines.  The pink count is the short term alternate.  The gray count is the 2nd alternate. 

Also be aware that if the b-wave low isn't broken by this wave down, bulls could launch an even stronger counter-attack... in other words, something even more bullish than anything shown below -- such as the larger wave (v) rally discussed later.

If the market continues down strongly at Monday's open, then the pink count above may actually be the correct short-term interpretation.  The chart below shows why I'm favoring the blue count, but I'm almost equally split on the two.  I'm favoring the blue count by maybe a 5-10% margin.

If the blue count is correct, it's difficult to gauge how much, if any, downside is left to that wave.  It would look better with some kind of correction and a slight new low -- but if one counts all the little squiggles, then there's already enough for it to be complete.

I'm not sure exactly where to place the assumed wave (2) target, because I'm not certain if (1) has bottomed.  Expect (2) to retrace between 40-60% of (1).  If a snap-back rally materially exceeds the 62% retrace, then we may be facing one of the alternate counts.

Now let's back off a little, and examine the larger time frame, to see how the market could find support soon, to match my expectaton that this is the fifth and final wave of the decline before a larger correction.

Next are the RUT charts, both short and long-term.  The 5-minute RUT chart contains critical data I want to discuss in more detail. 

Many Elliotticians whose work I respect are labeling the decline as ALL OF wave (i) down.  But based on the RUT, that count doesn't work.  This chart reveals exactly why I do a lot of market cross-studies before deciding on a count (I don't mind revealing my "secret" -- because my secret is simply hours and hours of additional hard work each day.  Anybody can do it!  Though to be fair, I imagine it's more difficult for people who have day jobs.).

This is also why I've prepared the battery of longer-term charts to help illustrate why the markets could find support very soon (if they haven't already).

The preferred count is shown in blue on the chart below.  The short-term alternate is shown in pink -- and again I'm only marginally favoring the blue short-term count over this count.  The intermediate term alternate (of either (iv) or (x)) is shown in black.

Long-term support is also nearby on RUT.

NYA likewise demonstrates why it could find support soon.  We looked at this pattern a few articles ago.

Same goes for the Nasdaq Composite.

Of course, the market's not entirely predictable at all times, and the more bearish potential that most wavers are favoring can't be completely eliminated.  Based on the patterns in RUT and others, I view the super-bearish potential as significantly less likely, but not impossible.

There are pretty good-looking head and shoulders patterns forming in many markets... I suspect, however, that another bounce is needed before that pattern is fully complete.  The INDU chart below shows why -- as it sits right now, the right shoulder would be very narrow relative to the left shoulder.  And, as discussed, the more immediately bearish count doesn't fit the wave structures across markets nearly as well.

Still something to be aware of, though I would assign low probability to it.  The more bearish alternate count is in black.

And of course, the more bullish side of that coin looks like the alternate in the chart below.  I don't think I've missed a short-term call in a couple weeks, and I always get a little worried for my readers after a long winning streak, because it tends to breed complacency.  The market isn't "supposed" to be perfectly predictable, and eventually I'll miss some calls -- that's just how it goes, so please make sure you take precautions in order to be protected whenever the misses come.

There are two big picture alternates shown below.  The first is that wave (i) bottomed already (low probability, for reasons discussed), and the second is that wave (iv) bottomed.  The wave (iv) count is still quite high risk to bears.

As I said earlier, this is a game of inches right now -- in other words, it wouldn't even take a big miss to see an alternate potential play out.

Finally, since Apple is "the Economy" these days, it does appear that Apple may have finally put in a top of some significance.

I've also added a quick and dirty US Dollar chart.  A triangle breakout in the dollar might suggest some hope in the more bearish equities counts -- if it occurs with conviction.  If the dollar can put together a strong rally, then that's likely to cap any equities rallies.  Of course, it has not broken out yet, and can always form another leg down before a breakout.  Or not breakout at all.  We'll factor this into the equities analysis if and when it occurs.

I've labeled the chart with a potential wave count, but my confidence in this count is marginal.

In conclusion, it does appear reasonably likely that there's one more decline to at least marginal new lows below 1357 still coming.  Again, the first SPX chart, and the first RUT chart show the preferred count in blue. 

With the short-term counts, I'm trying to sort fly droppings from pepper here, so it's probably more important to focus on the bigger picture than the 1-minute "is this (3) of 5, or (1) of 5?" charts I've presented alongside it.  I'm simply trying to help readers maximize their awareness and earnings. 

Looking at the big picture, one can see I'm not currently part of the mega-bearish camp that believes we're entering a larger third wave down.  I think this wave is close to a bottom, assuming of course that it didn't bottom at 1357.  Depending on the structure laid out by the market in the next few sessions, of course, my outlook may change.

As of this moment, however, I believe bears should exercise caution, because the assumption is that this will be the final decline before a larger snap-back rally.  The (x) wave adds confusion to the potentials, and should definitely be watched carefully.  The key levels to watch are the red trendlines, and the recent highs on SPX and RUT.  If the market makes it back above those levels, shorts should probably get out of the way for the time being -- especially with the possibility of the big picture alternate count taking us up to new highs in a larger wave (v).

But if the overall view is correct, there should be another 20-40 points of downside left on the SPX first.   Trade safe.

SPX and RUT Update: Warnings that the Market Outlook May Be Changing

Yesterday the market reached the 1384 upside target  -- and it also ruled out some possibilities, which is actually quite helpful.  In fact, yesterday's charts are chock-full of new information I didn't have before -- so this has changed my outlook somewhat. 

I believe it's very important to assimilate new information from the market, and to allow yourself to be influenced by that information.  You have to be ready to turn on a dime, and the market rewards traders who are nimble and punishes those who aren't.

Prior to yesterday, RUT had an appearance that could be interpretted a number of different ways.  It has now clarified itself as an extended fifth wave.  Prior to yesterday, there was simply no way of knowing this with any certainty.

There are a number of possible outlook changes as a result of yesterday's action, and I'll try to cover those changes, along with some signals to watch for.

Readers will recall that my alternate short-term count for SPX was an extended fifth wave.  As a result of the RUT's action yesterday (and some other things), I've made this extended fifth the preferred count.  Readers would be wise to take heed of this possibility, because it does alter the expectations of what would usually happen next.

Let's start with RUT, and from there I'll cover the changes in more detail.  We'll also look at more bullish outcomes, because the market has declared that we should.

Note the blue lines on the chart, which is a rough representation of how things might go if the bear count is still in play -- more on that later.  It is exceptionally difficult to anticipate all the ins-and-outs of this kind of retracement with high accuracy from this position, so this is a best-guess rough guideline of what could happen.  This guideline will get more accurate over the coming sessions.

One of the other things I want to discuss regarding the above chart is this:  it bothers me more than a little (for the bear count) that, if not for the extended fifth wave, there would have been an almost-perfect c = a relationship between the two waves of the decline.  This might be an early-warning clue to the market's intentions, and until the market confirms an impulse in the downward direction (by making a new low), bears might consider being quick to take profits -- or at the very least: cautious in protecting them.  I know that I will be.

Anyone who went short near yesterday's target high of 1384 SPX should, at worst, be able to make a quick, small profit, or at least limit their risk substantially.  This illustrates the importance of having the patience to make proper entries, and of not jumping into the market at random.

Readers will recall the big picture alternate count that this decline was a larger wave (iv).  Closer to the top, I was somewhat fond of that count -- but after the strength of the decline, I became less fond of it. 

I think we have to go back to giving that count some very heavy weight for the time being, until the market more clearly reveals its intentions.  I'll discuss why in a moment, along with what I'll be watching -- but first, here's the refresher chart for that count:

There are several warning signs which have cropped up with yesterday's action -- enough signs that, at this exact moment, I am giving a lot of consideration to making the more bullish count into the preferred count.  The next session or two should give us some early indications to decide which outcome is more probable.

Let's take a look at the short-term SPX chart, which highlights the bear count(s), and then discuss what to watch for.  This is currently the preferred count.

Here are two things to watch:

1.  If the current wave declines a little bit, say to 1381-83 (which would be the first target for a bullish correction) or lower, then makes a new high before it overlaps 1374.71, then that will make the rally a 5-wave impulse.  This will be a strong warning that the bullish count could be in effect, and new highs become more likely.

2.  The inverse is true: if the SPX overlaps 1374.71 first, then it virtually "locks in" an a-b-c rally, which would suggest new lows are more likely.

So we'll watch and wait right here to see what happens next.  Neither of these things guarantees a bullish or bearish resolution, but they do make each resolution signifcantly more, or less, likely.

I'm going to wait for the market to give its answer, but it won't take much here for me to make the bullish count the preferred count.  There are a number of reasons for this, including this NDX chart (below).  Note that all the targets published on 4/2 were reached.

And then there's this NYA chart.  The NYA chart is labeled with the bullish count... because that's what fits best.

Readers will also recall that my target for a bottom in the more bullish count was SPX 1350-1356, as shown on the chart discussed in this article, published on April 8.  SPX's low was 1357 -- close enough.  While you're there, take a look at the RUT chart in that article and its targets for the bull count, which were also reached perfectly. 

Same goes for the Wilshire 5000 (WLSH).  In fact, let me bring that chart forward, completely unchanged except for the new price action.  Back on April 8, I drew in a "hypothetical channel" based on the shape of the rally -- look how well that "guess-timate" channel held up.

Other factors bears should consider: yesterday had strong breadth and market internals; and was also a strong accumulation day, which rarely happens at the exact high of a move.

For an example of what the bull count might look like over the short term, here's a look at how things could play out in the RUT for that count.  Expectations would be similar for SPX.

In conclusion, after examing all this new information (and trying to be as objective as possible), I've practically talked myself into making the bullish count the preferred count.  As I said earlier, though, let's give the market another session or two to give us just a little more to work from before we completely throw out the short term bear view.  There are several key signals to watch right here.

Even if the bear view is correct -- based on the expectations of an extended fifth wave retracement, a new high is the likely outcome before new lows. 

With the new info received from the market yesterday, I think bears need to stay very cautious and alert at this juncture.  Trade safe.