Monday, February 24, 2014

SPX Update: Intermediate Upside Potential Still Appears Limited

Markets like this can make it a challenge to keep the updates interesting and not overly repetitive, redundant, and redundant.  There's very little to add on a material level -- in fact, I considered simply republishing the last update, but I accidentally spilled coffee on it.

Big picture, the S&P 500 (SPX) still appears to have fairly limited upside potential.  In Elliott Wave Theory, five waves forms a complete fractal, at which point a trend reversal becomes higher probability.

The near-term is ambiguous -- if the bear count is in play, then the top is probably in.  If the market is going to form five waves up for the fifth and final wave at higher degree, then it needs another small wave up.  At higher degree, both counts are basically bear counts, since the wave patterns suggest upside is limited.  From a classic TA perspective, that expectation may not fit with the potential cup and handle double-reverse v-bottom "papa bear, my soup is too hot" pattern, as it's sometimes called (when I'm trying to keep the updates interesting, anyway).  That pattern potentially targets 1900-1910 -- so in the event there's a breakout with increasing momentum, the wave counts may need to be revisited.  Presently I'm not anticipating that result, but any new signals would need to be respected as and if they occur.

There are two ways to view the current price action:  Bulls would say SPX is consolidating the recent rally; bears would say SPX is retesting a resistance zone (the all-time high).  Both descriptions are accurate, yet one of them is more correct -- pick your poison.  

The Dow Jones Transportation Average Unexceptional and Mediocre (TRAN) required some minor adjustments after the expanded flat count found a bottom at the previously-noted inflection point:

In conclusion, this market may to be trying to lull everyone to sleep.  I'm suddenly reminded of an old cheesy and cliche movie line: "It's quiet out there.  Too quiet."  It seems like most everyone is expecting new highs at this point, but, personally, I have very little desire to buy SPX near the all-time high, and I'm starting to see topping signals appear on some of my indicators.  Unless and until there's a convincing breakout, short -- or stand aside -- look like more reasonable positions to me.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

1 comment:

  1. Trading safe is one thing ... but I'm already up to my neck in worthless naked puts taken out when I thought the market would break down, from late last year onwards..I made the mistake of overtrading, not cutting positions when I still had a window .. mind played tricks with me ("just hold on it will happen" & "you should go for it, lets hit it out the park" were the paradigms that got me). quite embarrassed at this point as I have been trading for 10 years (albeit very amateurishly for the first 5/6) and should really know better, but in an act of desperation to prove friends and family that don't just stare at markets for the fun of it got to me.
    I have 2 questions:
    a) Will the market break down in your opinion before the end of the year and save me?
    b) As a (relatively) young guy in his 30s, should I pack up trading for good, perhaps taking up a job at wholefoods drinking organic miso soup and talking philosophy with yummy mummies and hippies looking for organic cabbages ... or should I have another go at trading, once I get a decent stake together (or I get lucky and saved as part 1 of the question) this time observing basic trading rules?