Friday, September 5, 2014

SPX, NYA, COMPQ: Careful, We're Still in the Chop Zone

Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet.  Let's start off with the 2-minute SPX chart to illustrate why:

This is a market that's still within a chop zone, and chop zone patterns are unreliable -- and frequently deceptive.  The best trade for chop zones is usually to trade the edges, which works until it doesn't.  Due to the unreliability of chop zone patterns, I'm very hesitant to try and draw a definitive conclusion while the market's still inside that zone.  My first inclination on the chart above is actually to view the bullish count as more reasonable, but that flies in the face of yesterday's daily candle -- and as noted, one can't trust chop zone patterns.

Let's look at the big picture, though, for why bears might have something to cheer about.  COMPQ peaked where I had blue V drawn, and now has enough waves to mark a completed impulse.  That, by itself, isn't the whole story, though, as we do not yet have confirmation of a trend reversal.

NYA finally eked out a new high, and also has enough squiggles to be counted as complete.

The bottom line here is that, given the incredible mess that is the near-term SPX chart, it's simply too early to make a definitive intermediate call.  We have a couple levels to watch to start ruling out certain patterns, and the first step toward more clarity is for SPX to clear the chop zone.  Trade safe.

Bonus Chart, posted half an hour after the open:  Much as I'd like to ignore this potential or pretend it doesn't exist, it does exist, so I feel obligated to share it.  Until bears break the key overlap, this remains wholly viable, and it's certainly something to be aware of.

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