Friday, January 9, 2015

SPX, BKX: Bulls Keep Hope Alive

Part of the value in Elliott Wave comes from properly identifying the market's inflection points.  It's not always possible to predict what will follow an inflection point, but those points do alert us to the possibility of reversals and trend changes.  Last update expected at least a near-term rally, and warned:

In other words, until blue 4 and 5 have been realized (thereby completing an even larger five-wave decline and thus suggesting a trend change at an even higher degree of trend), bears should be cautious at current levels.  If SPX is going to bottom on an intermediate basis, it's likely that this is the price zone from which that would occur.  So, put another way: If you're a die-hard bull, then this is finally where you place your bets.

The Philadelphia Bank Index (BKX) has already captured my first intermediate target, and again, that suggests this probably isn't the best time for bears to get greedy.  As the old saying goes, "Bulls make money, bears make money, pigs get slaughtered."

It remains to be seen if this recent inflection point will represent the beginning of a higher-degree trending wave, or if this is merely a counter-trend rally.  Thus far, there are not enough smaller waves present in the pattern to call it a major trend (it is not yet a five-wave impulsive rally, but is only three waves thus far) -- but, as I've stated previously, I'm not closed to the bull case, so I'll try to be as objective as possible in identifying if the rally becomes impulsive.  An impulsive rally would suggest that there will be at least one additional, sizeable wave higher.

The SPX chart below shows the current three-wave structure of the rally:

The Philadelphia Bank Index has already reached its minimum retrace target:

The 5-minute chart suggests the first decline was impulsive, so we should probably expect at least one more wave down (please note that I forgot to attach this chart to the original morning publication of this update):

In conclusion, bulls did what they needed to at Wednesday's inflection point, and generated a solid reversal.  They are now in the same position bears were in just a few sessions ago, and it's reasonably clear what they'll need to accomplish heading forward.  Do keep in mind this also means the current zone is one area where bears could retake control.  Call me stubborn, but until the bulls prove their case via the near-term waves, I'm still slightly inclined to favor the bears heading forward.  Once again, though, I'm not unequivocally married to that view -- it's just that it seems like it's a slightly-better fit to the the big picture charts.  Trade safe.

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