Monday, December 29, 2014

SPX, RUT, COMPQ, BKX: The Easy Money May Be Over for Now

Some noteworthy events have occurred in various markets since the last update:

1.  The Russell 2000 (RUT) captured my 1214-20 target zone (high: 2017).
2.  The Nasdaq Composite (COMPQ) broke the November highs, thereby validating my preferred wave count and capturing its minimum upside target.
3.  SPX finally captured the 2090-2100 target zone from early December.

This is where things start to get a little more challenging.  For the last couple weeks, the charts were pretty clearly telegraphing that the market wanted to go up, but now numerous target zones across multiple markets have been captured. 

Let's start off with RUT.  RUT, like most markets, is lacking a clear fourth wave to allow us to more definitively triangulate the wave structure.  It's quite possible that this simply means that a fourth wave is still needed -- but the wave structure is such that there are potentially enough waves in place for a complete rally.  As I've discussed previously, when you're dealing with a strongly-trending rally wave that's a bit vague (such as this one), the first impulsive decline will be a more concrete signal that the tide may be turning in the bears' favor.

(If you're new to Elliott Wave Theory, you may find the following article helpful:  Understanding Elliott Wave Theory, Part II)

Next is COMPQ, which has also captured its anticipated minimum upside target:

SPX is in a similar boat.  So far, the rally has simply ground higher and any attempts to anticipate a fourth wave have been premature, which is one of the reasons it's not a bad idea to await an impulsive five-wave decline before becoming too attached to the idea of a turn.

(continued, next page)

Below is a more basic chart of SPX.  So far, near-term support levels have arrested each previous decline.

BKX reached its upside targets ahead of some of the other markets, and is currently encountering at least some degree of resistance:

In conclusion, the wave structure has reached a point where there are enough waves in place for a complete rally, but as yet, there have been no signs of a turn.  Strong trends can continue longer than expected, so while it's not advisable for bulls to grow complacent at current price levels, there have still been no key price overlaps or support failures -- thus there's nothing yet suggesting that bears have taken control.  But upside targets have now been captured, so, for the moment anyway, the easy money may be over.  Trade safe.

1 comment:

  1. Hi Jason

    I am always following your analysis, great stuff! I am
    just a bit confused with your analysis of RUT, as its TA setup is very
    bullish having broken out of a year long range. This is a classical
    indication of a continuation move and it really doesn't look like it
    would come back into this range anytime soon, unless the big 4th comes
    across the board. In regards to this possiblility, from a fundamental
    perspective, we haven't even seen the first hike of the interest rate
    cycle yet and it might not even come until summer or fall. Normally, the
    market rallies during the hiking cycle, so, I would prefer to view RUT
    as a leading indication that we are about to see an extension of wave 3
    in all markets at least until the presidential elections or close to it.
    There might be a pullback soon caused by energy, but it would not be
    the big 4th, but rather, the last chace to get in and ride S&P all
    the way to 2500 and beyond.