Monday, November 18, 2013

SPX and SPY: Upside Targets Captured, What Next?

On Friday, the S&P 500 (SPX) 1798-1804 target zone was captured with minimum pain for bulls.  I had something of a highly unusual weekend, and was unable to draft the lengthy Pulitzer Prize winning article I had planned.  I'd be happy to share it (my weekend story, not the Pulitzer Prize), but it has little to do with the market, and more to do with wives who take "shortcuts" though sugar cane fields and end up stuck in the mud with no clue where they are, which requires you to rescue them before they're eaten by Cane Spiders, even though you drive a vehicle which is about as well-suited to off-roading as a pair of roller skates, which ultimately bottoms out on a rock and rips the oil pan off in the dead of night in the middle of nowhere and you can't get anyone to come flat tow you, because of the mud (of course!).  But, by some miracle, shortly before losing your oil pan, you did locate your wife and she was uneaten by spiders and you got your wife's vehicle unstuck from the mud!  Even though your car is still out in the cane fields as of this writing, patiently waiting for the mud to dry up enough that a tow company will be willing to get within 100 yards of it.  That's the very short version of my weekend... 

So let's start off with the SPX, which, as noted, captured its upside target with ease.  This is the zone where blue 3 would commonly be expected to stall.  If the next wave is indeed a fourth wave, it would be fairly common for it to take the form of sideways chop.  I've also noted the next potential upside target.

SPY, the S&P 500 SPDR (no known relation to Cane Spiders) ETF, also captured its breakout target, and with no draw-down.  This chart is a bit wider view than the last, and as things develop, it will be interesting to see if this is indeed an extended fifth wave rally.  I've detailed the broader implications of an extended fifth (using SPX again) on the chart which follows this one.

On the SPX long-term chart, we're now past February's "bear count" target.  Please note that any talk of turns is well ahead of the actual price action at the moment -- nevertheless, I have detailed the expected outcome (in broad strokes) if we are currently within an extended fifth.

In conclusion, as noted in the last update, bulls have claimed the prior inflection point, and thus seem to have retained control of the market for foreseeable future.  As the near-term waves unfold, we'll be able to begin to assign higher or lower probability to the intermediate extended fifth wave count.  Trade safe.

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