Friday, August 15, 2014

SPX, RUT, INDU: Big Picture Inflection Point

I have to admit, I've been really torn on this market since the bottom at 1904.

On the one hand, the market reached my target zone and rallied, which was the expectation I'd had all along.  On the other hand, I'm not keen on the wave structure near the lows.  A few markets, such as RUT, still have big questions to answer.  I would have really like to have seen a much cleaner wave structure at the bottom, so I could be gung-ho about buying the dips now.

Last update, I presented some of the holes I'm seeing in the bull case, but because of my prior expectation for a bottom at SPX 1899-1907 and the potential of new highs, I still have not shifted to the bear camp.  As I've wrote on Monday:  "While I am not entirely sold on the bull case just yet, that's a whole different animal than 'being bearish.'"

The challenge right now is this:  On a two-hour chart, everything looks fine for the anticipated fourth wave bottom at 1904 and straight on to new highs (that's a turn of phrase; don't take it literally) in a fifth wave.  But when we break everything down at the micro level, the pieces don't seem to fit together quite right.

So I'm remaining open to both potentials for the moment -- and fairly evenly-split on the two.  There's times I can look at the market and feel very confident about where it's heading (such as the last few weeks); but there are other times that all I can do is try to react to the price action in real-time in an appropriate manner.  Nobody's right all the time, and nobody needs to be -- one just has to have a reasonable idea of when and where to act, and when to sit still.

Let's look at some big picture charts.  Several markets have reached inflection points, including SPX, which closed yesterday at a rare quadruple confluence of resistance.  I have the bear count shown as the alternate on this chart, but as noted, I'm fairly evenly split on the two as of this exact instant.

INDU has cleared first important resistance:

RUT has not:

BKX rallied up to its next inflection point, where I had red (4) drawn on the chart:

Finally, the SPX 15-minute chart reveals that the near-term wave structure isn't terribly clear right now:

In conclusion, there's nothing in the charts that's screaming of a clear pattern, so the bull and bear options are pretty well in balance at this time.  I generally take action as a trader when the patterns are clear to me, or when I can get low-risk entries that strike me as a roughly 50-50 shot, but with significantly better than a 1:1 risk:reward ratio.  This is the type of market where I'm watching for the latter.  Trade safe. 


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