Friday, September 11, 2015

SPX, NYA, VIX: A Complex Correction?

Last update noted that SPX 1994 was the level to beat for bulls, and included the following brief discussion about trading ranges:

From an analytical perspective, range-bound markets are typically the most annoying.  After a while within a range, I've often found that traders begin to imagine all sorts of things, and ranges typically make people either more bullish, or more bearish, depending on whether we're near the top or the bottom of the range.  Right now, we're near the top, so bullish is in fashion -- but I always like to remind myself that nothing happens within a range.  Something happens when it sustains a breakout or breakdown.

SPX then proceeded to gap up, but was rejected just south of 1994 -- and reversed to the tune of 50 points, thereby proving my point about trading ranges, and hopefully preventing readers from turning bullish at exactly the wrong time.  This pattern leaves open the possibility that the current (presumed) fourth wave is forming itself into an even more complex correction, as shown below in SPX and NYA:


Finally, I don't try to apply Elliott Wave to VIX, because it's essentially an oscillator and a zero-sum game.  Regardless of that, I found the current pattern interesting:

In conclusion, I'm very slightly inclined to favor the idea that the market is forming a complex fourth wave correction as shown -- this pattern would be near-term bearish, then turn bullish for a spell, then be bearish again.  However, a sustained breakdown at the low would force us to treat the market with kid gloves, and even though a b-wave could do that, front-running a rally after such a breakdown would be out of the question.  On the bull side, in the event bulls can sustain a breakout over 1994 before a stronger decline takes hold, then bears probably want to be extremely cautious.  Trade safe.

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