Monday, October 13, 2014

SPX, INDU, TRAN: Market Reaches Near-term Inflection Point; but Intermediate-term Unchanged

Nothing has changed to the intermediate picture in the past few weeks, and that remains bearish.  But the near-term is still up for grabs, so in this update I'll try to cover a few signals to watch.

Let's start with INDU's "simple" chart from a few weeks ago.  On Friday, INDU captured my target from October 29, and has accordingly reached a potential support zone.  As I wrote a couple weeks ago, though, do keep in mind that "there's no such thing as support in a bear market" (see 9/24 annotation) -- so if the market has entered a bear phase, then support zones will mean much less than they did during the bull phase, and will end up functioning primarily as bull traps.

The 5-minute INDU chart shows that both near-term options discussed on Friday still remain viable, and there's been nothing conclusive yet to rule out one or the other.  Spectacular failure of the lower blue channel line would be the bearish expectation, while the near-term bull option would need to muster a bounce very quickly to remain on the table.

On the SPX 30-minute chart, the very first step for bulls to even begin to gain a little traction would be to break out of the blue waterfall channel:

The 2-hour chart notes that, here again, this market has reached a potential support zone.  This is tricky here for bulls, though, because third waves are very unforgiving to counter-trend trading.  If the market has already entered blue (3)/C, then every bounce along the way is going to be sold to new lows and there will be no second chances to exit longs for profit.  So unless one wishes to end up becoming a "long-term buy-and-hold investor" at SPX 1900ish, I would suggest staying very nimble with any long positions.  The trend is down at the moment, thus the lion's share of intermediate profits will likely come from selling the bounces, not buying the dips.

Finally, TRAN is another market that's reached potential support:

In conclusion, this is a key inflection point for the near-term, though I do not believe it's an intermediate inflection point.  Nothing has changed in my intermediate stance since September 24, and I still believe bears have the ball for the intermediate-term either way -- but bulls do still have a shot at mustering a near-term rally, and it has the potential to be a solid rally.  Whether they will or not is another question entirely. 

It's interesting how the wave counts have set up here, in that if support fails significantly, that will essentially confirm that we're in the middle of a third wave decline... and the middle of third waves is the "point of recognition" for the masses.  What better catalyst for recognition could there be than a spectacular failure of support?

The main question in my mind is still simply "now or later?"

So, near-term, we have a few clues to watch to help sort out short-term bull option from the bearish option.  Intermediate term, I believe that even if bulls can put together a rally from here, that rally will be sold to new lows.  Trade safe.

No comments:

Post a Comment