Monday, November 17, 2014

SPX and INDU: Going Out on a Limb for the Long-Term

As I looked over the charts this weekend, the one theme that kept repeating is that the total market is rather odd.  Maybe it's just impatience, but after a while, I felt like jumping up and shouting, "I've seen enough!  Squire, lock this market away in the dungeon!"  Then I realized that I have no squire, no dungeon, and no authority to lock this market away -- so I guess I'm stuck with continuing to try and interpret it.  (But I think I finally have my Christmas wish-list figured out!)

Anyway, I've decided I'm going to go out on a limb in today's update.  Some weeks ago, I referenced the possibility that the market had not yet seen the higher-degree fourth wave, but was instead in the midst of a smaller fifth wave rally.  This will be easier to understand if seen on a chart, so let's start there -- the count I just referenced is shown as black "or 3/4/5."  I'll continue climbing out on the limb after this chart.

The limb I'm going out on makes that the long-term preferred count.  Part of the reason I've decided that is discussed on the chart below:

What I keep coming back to is that this rally is probably too strong to be a first wave.  Therefore, it's either a third wave or a fifth wave -- and, wouldn't you know it, there's one count that just happens to fit that character perfectly.  In fact, the black count interprets it as the fifth wave of a third wave; and to me, that seems to best fit the nature of this rally.

No material change to the near-term, except to note that Friday's bounce exceeded Thursday's high, and that means that in the event 2030 breaks now, the downside expectation has to be adjusted to match a potential ABC where wave C could equal wave A (see red annotation below). 


And finally, BKX came close to making the new low I was anticipating here, but has thus far fallen short by two pennies:

In conclusion, this market remains challenging for anyone who's not a "just buy every dip!" bull.  It's overbought on a number of metrics, but has thus far only undergone a sideways-up phase in response.  As I stated weeks ago, this is not the type of market where one can make reversal calls with high-probability, so I'm continuing to abstain from even attempting to do so.

In the bigger picture, I suspect what we've been seeing is too strong to be only a first wave, and thus suspect we're currently unwinding ALL OF wave 5 in one relentless bear-crushing wave.  So far, anyway, there have been no clear signs that it's over yet.  And that doesn't worry me:  I suspect we'll have a reasonable sense in real-time if and when that starts happening.  Trade safe.

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