Wednesday, September 10, 2014

SPX and NYA Updates

In the last update, I talked about how it was tempting to stick a "4" label at 1990.10, but that chop zone patterns were not to be trusted, and there really was no solid evidence to assume wave 4 had ended at that level.  The market has since gone on to invalidate 1990.10 as the bottom of a fourth wave.

The pattern has continued to morph its way into increasing levels of complexity, and, as of this exact moment, anyway, there are nearly infinite ways to label the wave structure.  A detailed examination of the charts reveals that I could easily draw up at least 20 different wave counts of the same existing structure -- and that means there's still no room for arrogance or overconfidence about the near-term.  We're simply going to need to see how the market reacts over the next couple sessions to begin narrowing down the options.

Despite the plethora of near-term options, as previously noted, I think the break of 1990 has to be viewed as favoring the bears -- either immediately or after some more backing and filling.

I've drawn up a chart of the two most obvious wave counts (and one variation therein), but it's not a bad idea to continue "expecting the unexpected" until there's more clarity.


The 5-minute chart reveals my thought process in detail, given the available evidence so far.  This chart only shows the bear count and its first variation.


NYA turned out to be the canary (again!) on Monday, as it made a new low while SPX feigned a corrective decline.  The potential falling wedge in red is either a terminal pattern or the precursor to a steep drop -- we should know fairly directly.  Due to the nested third wave potential, I would not try to step in front of any pending declines until there are solid signs of a basing pattern.

In conclusion, we probably have to view SPX's failure at 1990 as bearish until proven otherwise -- although, as noted, this break does not preclude a near-term rally.  Trade safe.

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