Friday, September 26, 2014

SPX, NYA, US Dollar: Anticipation...

Wednesday's update was the most unabashedly bearish update I've published since late July, when I anticipated a correction to SPX 1899-1907 (exact target calculated August 1), which would be followed by new highs.

Speaking of, I want to reprint something from that update of August 1, because I think it may be relevant to the current market:

The point is that we can't force things; we should try to let the market come to us.  When it does, then we should go with the flow -- take what it gives us, and let the waves do their work.
It's in our natures to want more.  So we sometimes fight our way into positions that we know are ill-advised -- and then we fight our way out of positions when we know we should just let them ride.  But if you can master those two self-defeating tendencies, then your account will grow by leaps and bounds.  There will still be reversals of fortune, but they will come less frequently, and the increases will ultimately outweigh the reversals. 

I think trading attracts the ambitious, so I have to believe these are almost universal struggles for traders.  So your ambition got you into trading -- great.  Now if you want to keep trading, then you must learn to temper ambition with discipline.

It might help the ambitious to consider what a friend once told me: "You'll get more done in six days than in seven."  Meaning:  Sometimes the most productive thing we can do is nothing.

"Nothing" as in:  Don't force trades.
"Nothing" as in:  Leave your position alone once you're finally in that trade you wanted all along. 

I reprinted this because, by all appearances, the market is currently in a third wave decline, and many traders tend to leave money on the table during third waves.  Third waves are usually strongly-trending moves, and thus are best approached as trend-following waves, as opposed to waves where one tries to get too fancy.  Let's take a look at the NYA 30-minute chart to see why this wave could run faster and further than many expect.  It's not entirely clear-cut, but it is possible that we're in a third wave at two degrees of trend.  I can't say for certain.  But, in the event that we are, there will be a lot more downside in store rather directly.

Incidentally, NYA captured Wednesday's downside target.

A look at SPX shows that the market has broken down from its red base channel.  Nothing bullish can happen with the market outside that channel.  Please note that this does not necessarily make the inverse of that statement true.  In other words, the market can reclaim that channel briefly, then decline again.  But until it reclaims that channel, there's no reason for bears to even begin to worry.

We have an interesting confluence of Elliott Wave and classic TA approaching, which makes it worth paying attention to, especially since nobody on the planet can yet guarantee that this decline isn't simply an ABC.

And here's a bigger-picture look at that black trend line:
(continued, next page)

Finally, a quick and simple look at the US Dollar:

In conclusion, based on the much larger pattern, I suspect this will ultimately turn into a five wave decline, to mark wave A/1 down of a still-larger intermediate decline. Nevertheless, at the moment, we do have to stay aware that calls for this decline to turn into five waves are anticipatory, since we do not yet have another five-wave decline to build from.  A near-term bounce isn't out of the questions, but the published targets would currently be unchanged by a minor bounce.  Trade safe.

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