Monday, September 15, 2014

SPX, INDU, NYA, COMPQ: Is Market Clarity Finally Imminent?

I'm starting to feel like Haley Joel Osment in The Sixth Sense, except instead of whispering, "I see dead people," I find myself wanting to whisper, "I see expanded flats."  But then, I was dropped on my head a lot as a child. 

Speaking of drops, the decline off the all-time high has been a brutal, choppy grind lower, which has been chewing up traders on both sides.  And, to make matters worse, the move has continually refused to clarify itself.  However, I have a suggestion as to what it might be -- this was, in fact, the same suggestion I offered on Friday, though Friday's drop marginally exceeded my expectations.

My suggested pattern is, you guessed it (or you read Friday's update): An expanded flat.

But I think it's a better expanded flat than I originally anticipated.  Why is it better?  Well, because if the market rallies in the near future, then it may be a predictive expanded flat (standard caveats apply).

Let's take a look at SPX to see what I mean:

This isn't a clear-cut move by any means, though.  So, since I need to live up to my nickname as "the hardest working man in showbiz" (or was that James Brown?), here's another possibility, shown via INDU.  Keep in mind that INDU and SPX should generally both be watched during the session for clues, especially in a market this vague.  I didn't detail the ending diagonal shown on INDU on the SPX chart, for example, but the pattern is valid for both indices.

NYA has now formed a five-wave decline, and the overall pattern is much less choppy than INDU or SPX.  Note that it's also reached a theoretical support zone.  Support, combined with the five-wave decline, means that it's not a bad bet to suspect we may see a bounce soon.

This may lend credence to my expanded flat thesis -- though, of course, the market always reserves the right to do whatever the heck it wants.  Sometimes waves we label as "3" and "4" are just another 1 and 2.  In the end, analysis and trading are matters of playing the odds -- and odds are just probabilities; never guarantees.

On the chart below, (5) may have completed Friday, but could run a bit lower without creating problems for that count.

NYA has effectively reached the 10,870 +/- target from September 10 (13 points on a 10,800 point index is well within the margin of error for most any pattern):

COMPQ currently has exactly 873 possible options, but might still make a good canary in this situation.

(Note:  The following requires a working knowledge of the alphabet):  Wave-e of a triangle has no rules except that it not exceed the low of wave-c.  But I prefer to use the wave-a low in vague situations like this, because the wave we assume to be wave-e might actually be an ongoing part of wave-c, which means it can break the c label's low -- but normally wouldn't break the low of wave-a.

Big picture, the potential of an intermediate top still looms:

Finally, a reminder about what the nested third wave count looks like, lest we get complacent:

In conclusion, the market remains as clear as a politician's promises (vague, indecisive, unsubstantiated, confusing, annoying, anger-inducing, etc.).  I'd love to see the expanded flat rally noted in the first SPX chart, as I think that is the best fit for the pattern on the 1-minute charts.  Sometimes the 1-minute charts can be deceiving, though, so I'm not closed to the more immediately bearish options of a nested third wave, as I've been discussing over the past week.  Bulls best hope seems to be for an ending diagonal, as noted on the first INDU chart.  Trade safe.

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