Wednesday, August 13, 2014

SPX, INDU, RUT, TRAN, COMPQ -- 1904 SPX as Red-Line Critical Support

The more charts I look at, the more I'm worried for the bull case.  I still wouldn't characterize myself as "bearish," but I would be very bearish below 1904 SPX.

I spent too much time on charts tonight, and didn't leave myself much time for words, so we're going to get right to it.  Hopefully the annotations will lay out my thoughts in enough detail.

First, let's look at some of the charts that are making me worried for the bull case.  We'll start with BKX.  This shows the "mild" bear case:

Next, TRAN -- this is a little more of a hardcore bear case, because the count implies a third wave (the longest and strongest wave) decline below 7959.

Bouncing over to COMPQ, we see the overlap at 4413 rules out the rally as a fourth wave (waves 1 and 4 cannot overlap) -- therefore, any decline below the recent swing lows should be treated as a third wave.  In other words, any breakdowns should be approached as the precursor to a potential waterfall decline.

Next is RUT, which is flashing more warning signals for bulls.  Remember Monday's little "or 2?" annotation?  That's where the rally stalled.  Again, there's third wave decline potential here.  If bulls can sustain a breakout over 1149, it would help relieve some of the bearish potential energy that's coiling in this chart, and could trigger a larger rally.

Another look at INDU's long term chart below.  INDU has so far failed to reclaim the broken red trend line, which is a key pivot zone.  Most of the time, trend lines like that don't count.  This one does.

Also note that on Monday, the only "official" personal target I gave for the rally was in INDU, and my target was 16,660 +/-, which was effectively reached at 16628 (32 points in INDU is the equivalent of about 3-4 points in SPX).

Let's look at SPX.  Given what I'm seeing in other markets, I think we have to consider 1904 as a critical support zone for the time being.

Incidentally, a reader asked me why the decline was corrective, but showed as five-waves off the all-time high.  Please note the all-time high is being counted as wave B of an expanded flat.  For anyone who missed it, I explained this pattern in detail on August 4.

SPX 15-minute.  The rally stalled at the black (3) on this chart (Monday), but it looks to me like (4) and (5) may have compressed.  It's entirely possible the rally is essentially over.

To the north, bears probably want to step aside if SPX is trading above 1944, at least until a resistance zone is hit and/or a clearer picture emerges.

In conclusion, the more charts I study, the more I'm nervous for the bulls.  In fact, if the market hadn't found support directly where it "should" have for a larger fourth wave (big blue (4) on the 30-minute SPX chart), I would probably actually favor the bear count at this juncture.  As it sits, I can't quite bring myself to do that just yet -- and SPX would maintain a bullish bias above 1944.  But if SPX sustains trade south of 1904, then I would be very inclined to treat that as the start of a large third wave decline.  Trade safe.

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1 comment:

  1. Hey Jason, can you do me (and everyone reading your posts) and go to this site -, and listen to today's (8/13) radio show. Do it from your computer, not phone. It's easier. Fast forward to about 9 min left at the end where he gives his opinion on the markets. Moe is the guy I first even heard anyone mention Elliott Wave back in 1998. He's a money manager who has this show and almost everyday gives his opinion on the current wave count. He's calling this bounce in the SPX a 4th wave bounce targeting ultimately 1885ish before the end of year ramp to new highs. So basically he's in the same camp as you in the bigger picture, but the current setup is different. I was wondering how you could see this as a 4th in anyway? He's having 1956 as the turning point to make his call moot. I thought you might find his opinions interesting as another point of view in your arsenal as I do.