Wednesday, January 29, 2014

Bears Closing in on Intermediate Victory

There's been no material change in the outlook since last update, except to note that the first downside targets have nearly been captured for the S&P 500 Spyder Trust (SPY).  SPY so far has come within .12 of the target -- which isn't too shabby considering that thesis was originally put forth before the market had even reached the 184-186 upside target zone, much less reversed downwards.  Momentum has confirmed the low, so the charts appear to suggest at least one more wave down lurking in the future.  Another wave down would serve two functions:

1.  It would capture the first target zone.
2.  It would give the decline an impulsive appearance, which would suggest another leg down after the next bounce.

Stay alert to the fact that, at the moment, the market is behaving like it's in a crash wave, so I'd suggest staying very nimble on any long positions if 1772 fails.

Near-term, the S&P 500 (SPX) presents two options, as discussed on the chart below.  If we're forming a standard impulsive C-wave, then any opening declines should find support north of 1772 -- and the impulsive c-wave actually suggests a decline toward gray 2 (which would be bought immediately) to start the session.  Please read the annotations below for discussion of the potential of a "failed" c-wave, and the implications.

On the 30-minute SPX chart, it's interesting to note how the market was drawn to the confluence of support lines on Friday's chart.  It's also worth observing how the well-traded range of the noise zone provided virtually zero support, also as noted on Friday.

In conclusion, bears have done what they've needed to up to this point -- if they can force another new low, either directly or after an impulsive c-wave, then we'll have what appears to be a five-wave impulsive decline.  On the flip side: if bulls are going to stick-save this market and build an intermediate bottom, then now's the time.  Trade safe.

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  1. The gap down this morning was tricky. I was expecting a move up to 1810 area to short from but they dropped hard and faked out a lot of bulls and bears I think. Since they came up off the low hard this morning I'm leaning toward them still making a run for the 1810 area. That would make a nice ABC move up from the 1772 low and I think it's a wave 4 up with a wave 5 down yet to come.

    This seems like the most likely play now as I think the FOMC meeting will be viewed positive at first and cause the rally into the close. But tomorrow we could see that finally 5th wave down start. I just see a lot of bears short right now and that usually means they will squeeze them out before they drop it. That's why I still see that 1810 area by the close today.

  2. Hi RDL, appreciate you stopping by, have always respected your work. :)

    As I see it now, SPX was either building a 5th wave ending diagonal into the close, or is coiling for
    new downside explosion (nesting 1's and 2's). Sustained trade south of 1765 would suggest the bear nest.

  3. I was looking for a quick rally to that 1810 area and then a collapse to 1750 or below, but it's not looking good for any rally tomorrow so far.