Monday, September 21, 2015

SPX, INDU, ES, HYG -- An Interesting Fractal Comparison to the Current Market

The price pattern has become an order of magnitude more complex over the past couple weeks.  On Thursday, we had a breakout that reached the first if/then breakout target of 2019-28 (shown on September 9), before reversing hard and fast.  Because expanded flat b-waves are allowed to violate key levels, this still leaves the preferred count on the table:

On the chart above, do keep in mind that blue (c) could instead be wave (3) of v, and thus ultimately rally to new highs.

My main argument for an expanded flat is still simply the fractal.  Last night in ES, a very similar fractal formed on the one-minute chart.  I traded that as a b-wave into the high, and indeed, price retested the low, then reversed back up and broke out (second chart).  Compare the chart below (ignore magnitude) with the chart above, and see if you can spot how similar the two fractals are.

Note how that pattern resolved:

The trouble bears have on an intermediate level is that it's a stretch to come up with bear counts.  Not impossible, but we have to resort to rare "triple three" patterns, or other unusual waveforms (triple threes are the Elliott Wave equivalent of a grunt and a shrug):

The HYG:TLT ratio provided fair warning, well in advance, that equities were diverging, and now it's reached an interesting inflection point.  If it breaks down here, there is a significant amount of downside potential -- so this continues to be worth watching.  If this ratio breaks down coincident with the market, then perhaps the more immediately bearish patterns are in play.  If support holds, of course, then no harm, no foul.

The straight-up bull count for SPX still remains alive for the moment as well:

In conclusion, frankly, this isn't my favorite "market moment" right now.  I spent a long time staring at charts this weekend, and this month's rally is truly one of the most ambiguous waves I've seen in quite a while -- so I can't be 100% certain of anything, but I'm modestly inclined to continue favoring the expanded flat preferred count (first chart), even after Thursday's curveball.  That nasty whipsaw does throw a bit of ugliness into the chart, so the more bearish patterns remain alive, and can't be written off.  We'll simply have to see how it pans out from here.  Trade safe.

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