Tuesday, July 2, 2013

SPX Update: Let's Simplify the Picture

Yesterday I focused on technicals; today I'm going to refocus on wave counts.  I think many of us have been making this wave more complicated that it actually is.  There's a big mess in the middle of the chart, and I think we've let it occupy too much of our focus.  I know I have, anyway.  I've simplified things for today's update. 

The count below shows the market is likely in one of two waveforms.  Either an ABC corrective decline, which will head to new highs, or a very bearish nest of first and second waves lower.  A nest of first and second waves is considered quite bearish because the third wave of a move is usually the longest and strongest -- so if this decline hasn't seen the third wave yet, then things could get awfully ugly.  1560 should be considered critical support -- and really, bulls don't want to see the market sustain trade beneath the black trend line shown below.  Notice how the market was magnetized right into the confluence I mentioned on June 27; this is a logical spot for bears to mount a defense if they're going to do so.

I've been reiterating for several days that I remain marginally in favor of the bears as still having slightly better odds than the bulls here, though the market reserves the right to alter my opinion.  In any case, the next chart shows one of the reasons for my thinking.  I mentioned last week that almost all of the rally was being carried by the overnight futures.  Cash traders really hadn't joined in, and they still haven't -- the chart below emphasizes that point.  I can't recall that I've ever seen a rally off an important intermediate low in the form of dojis every single day for a weekThis reeks of distribution to me -- run up the futures, then sell out your longs to shorts who are covering...

As a result of this bizarre rally, I've had a really difficult time nailing down a short-term wave count on the S&P 500 (SPX).  The cash charts are a mess, in my opinion.  I've tried counting ES (E-mini S&P futures), but unfortunately they're not a whole lot cleaner.  Below is my best-guess of the near-term options.

The Philadelphia Bank Index (BKX) has actually marginally exceeded my target zone now, but either way, it's decision time there.  I have to mention, for folks not well-versed in Elliott Wave, that there is an option where BKX exceeds 62.92, then declines to new lows for this leg -- then makes new highs.  Basically, we'll burn this bridge if we come to it, but suffice to say that all intermediate bear options aren't completely closed if BKX exceeds 62.92 -- but it would imply that any pending immediate decline would probably be bought back up to even higher highs.

In conclusion, as I mentioned yesterday, I believe this is an inflection zone for the market.  Presently, I continue to give slight odds to the bears for lower lows -- but there's still limited clarity here, and I'm not at all closed to bullish options.  Trade safe.

Reprinted by permission, Copyright 2013 Minyanville Media Inc. 


  1. Always love your work Pretzel--and I only leave a note to say "Thanks" a few times--but truly believe you have wonderful technical skills that help me to trade well. Keep on posting your great insights, they are appreciated more than you know. Have a great Fourth of July.

  2. I've been eyeing a HS on the 90 day chart that goes to about 1400. It's a little funny looking, but....

  3. If you take the rising bearishness as a contrarian indicator, we should see the markets continue higher.
    The NYSE Arca Securities Broker/Dealer Index is not showing much weakness so far.