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Thursday, June 27, 2013

SPX Update: An Ambiguous Market


The market has moved into something of a no-man's-land for the moment. Because there’s ambiguity at multiple degrees of trend, it becomes extremely challenging to interpret exactly what the market's next move is -- and there isn't much in the way of key levels to tell us what's coming next.

The S&P 500 (SPX) has reclaimed 1598, which really isn't what the bears wanted to see.  The fact that it failed to act as any kind of resistance this time around indicates sellers may be exhausted, and bears need to reclaim it directly.  Next resistance is 1608 +/-.  Above that, and probably the next key informational level is the rising intermediate uptrend line.  If bears can't mount a defense there, they may be in trouble; but first things first. 

There's a really off-the-wall wave count which has us forming the bottom of wave C (or iii) at the recent 1560 low.  So as we examine the potentials, keep in mind that it's entirely possible that wave iv is over and the market will rally to new highs directly.  I'm not favoring that view, however, for reasons I'll cover in a moment.

Strangely, the index which has kept me from becoming super-bearish previously is now the same index that suggests to me that there's more selling ahead.  The Philadelphia Bank Index (BKX) appears to be forming an expanded flat, which is one of the potential patterns I've noted over the past few updates.  An expanded flat is a waveform that's brutal on traders, because it whipsaws buyers out at the bottom, then whipsaws sellers out at the top.  I've suspected this waveform for a while, because the decline lacked any clear structure or acceleration, but there was no way to really verify it.  As I have it labeled, the expanded flat could even exceed 62 before reversing.  I'm uncertain if it will do so (though I suspect it will) and BKX is in the potential topping zone now. 

If this pattern is correct, then the decline should resume fairly soon.  Of course, the bullish possibility is that the decline to this point was a double zigzag correction, which has found a bottom at 58.73.  Above 62.92, and the market is cleared to rally toward the mid-65's.  I think the pattern fits better as an expanded flat, but I've been wrong before.




On June 24, I noted that the Dow Jones Industrials was approaching a support zone, and it found support after a near-perfect tag of the noted trend line.  Bears are going to need to break that support level to get anything going.



There are two main potentials I'm watching on SPX, and the one I'm favoring is a bit unorthodox.  In fact, I suspect most Elliotticians would take issue with my preferred wave count, but then they often do.  Nevertheless, the count I'm favoring is that wave iii or C has bottomed with a massive fifth wave extension -- which also opens up the possibility that there is no fourth wave up and fifth wave down coming, and wave C of red iv may be complete.  It all depends on whether the market is going to form an impulsive decline or not, and since we have no downward impulse waves on the chart at this degree yet, we genuinely can't know which outcome to expect. 

Based on my read of BKX, I think there's probably another wave down still in store for SPX.  What would be most interesting here is if we see another fifth wave extension -- but this time for blue v.  That would place the target well below my blue box -- but I simply can't predict that in advance.  If my BKX count is correct, then it's a good possibility, since BKX would need to move considerably to "get 'er done."  Of course, there's no law that says my BKX count is correct at all -- so I have to at least stay open to the option that all of wave C is complete and the bottom of wave iv may be in place, especially given the fake-out breakdown of the red base channel.  That's often what you see at the end of a C-wave.




In the interest of balance, I'm also going to track the mega-bear count for the time being, though I'm currently not inclined to favor this count.




In conclusion, we're in something of a no-man's land at the moment.  The market has so far failed to reach my target zone, and has held the key 1560 support zone that I mentioned in Monday's update.  For the moment, have to at least consider the potential that the bottom is in.  If you're of a bearish inclination, I would suggest only low risk entries until we have confirmation of an impulsive move downward (which would indicate the larger trend has changed).  For that to happen, the market needs a new low -- as of right now, the long-term trend is still currently pointed upwards, and both options remain viable.  If wave iv is going to find a top, that needs to happen relatively soon.  Trade safe.

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