Monday, September 8, 2014

SPX, INDU: A Look at the Long-term from within the Chop Zone

And here we are again.  Last update noted that: "Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet."

I couldn't have said it better myself.  (Wait... what?)

I think we're still there.  Believe me, I'm just as tempted as the next Elliottician to stick a "4" label at 1990.10 SPX and go back to watching TV.  And maybe that's exactly where it should go -- but all the market has done is range-race through the chop zone, and until we sustain trade outside the range, there are still options for more chop.

Let's start with the obvious counts:

And now for something completely different (with a nod to Monty Python):

Bulls probably want to see SPX follow a path similar to the one laid out in red on the first chart.  In other words, a bit more coiling, THEN a break of the high.  Bears want to see the market drop straight down below 1990.10 without breaking 2011, as that would imply a third wave decline, and put the whole wacky extended fifth wave retrace thing I talked about last month back on the table.

INDU doesn't quite jive with SPX -- and there are implications here, which I'll discuss in more detail as it becomes appropriate.

Also, today is Monday the 8th, and you know what that means!  It's been a long-standing tradition that on every Monday that falls on the 8th of a month (if that month is September), we update the long-term charts!  I'm sure readers are tuning in from all over, in anticipation of this big event.  So, let's take our traditional "Monday the 8th of September" look at the long-term charts!



In conclusion, chop zones can mess with our heads -- so we should stay alert to that fact.  Human thought moves faster than just about anything in the physical world, so our natural tendency is to think the market should move as fast as our imaginations do.  But it doesn't.  While it is entirely possible wave 4 bottomed at 1990.10, we really have no guarantees that it won't become more complex.  We also have no guarantees that 1990 was the bottom of a fourth wave; and should probably not completely write-off the bear options just yet. 

The bottom line here is that traders should stay on their toes and check their assumptions at the door as long as the market remains range bound.  Trade safe.

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