Friday, January 25, 2013

SPX, HYG: HYG Signals Further Intermediate Upside for Equities

Yesterday, the S&P 500 (SPX) briefly reclaimed the important psychological level of 1500, a level it hasn't seen since Bob Barker quit hosting The Price is Right.  Apparently, back in 2007, Barker quit out of moral obligation, because he knew the SPX price was wrong (insert rim-shot and favorite Happy Gilmore quotes here).

The third wave rally has now fulfilled its prediction of an upside surprise, though I'm not sure we can qualify it as a "surprise" anymore, since we were largely expecting it, as noted on the chart below on January 10.

Anyway, the wave structure presently appears to support a reasonably direct trip into my third target zone of 1520-1530, and sustained trade beneath 1485 is now required to cast suspicion on that outcome.

There is some potential of a bit more backing and filling -- it's difficult to determine if the impulse wave downward (which began around noon yesterday) represents the end of a wave or the start of one.  I've noted a few keys to watch on the chart below.

I continue to feel that the Philadelphia Bank Index (BKX) offers helpful clues here:

Finally, a long-term chart of HYG, the i-Shares High-Yield Corporate Bond Fund.  Junk bonds tend to be an excellent barometer for equities, and this chart suggests that there is still more upside to come for equities over the intermediate term, because it's virtually impossible to count the rally as five complete waves.  Depending on what happens to prices here over the near-term, there could be signals suggesting a considerable amount of upside remaining.

In conclusion, the market presently appears to be aimed at my third target zone.  As noted, 1485 is the first key level which could begin to break the upward-facing wave.  Trade safe.

Reprinted by Permission; Copyright 2012, Minyanville Media, Inc.


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  2. Great work. Honestly the best. I do not trade the US markets but I enjoy the academics of your analysis. I wish to learn more of the intricates of the Elliot Wave Theory. Bedsides the Prechter and Frost book, any suugestions? Thanks once again for great work