Friday, October 23, 2015

SPX, INDU, BKX: New Bull Leg, or Complex Flat?

Let's begin by reviewing some of the updates from this month, with some additional commentary.  First up is October 16:

Bigger picture, let's not get too focused on the (c)-wave count as the "only" count. There are definitely bull options for this to be a third wave, so there's no need to sell every new high. The worst disease for bears to get right now is "Fear of Missing the Top," because this leads to emotional trading and bad decisions. Tops are usually pretty clear. Worst case, you get something like the Fed Spike we had last month and an abrupt reversal. So what. That move made the market's intentions obvious immediately -- and there was still plenty of money to be made following the preferred count into its target zone of 1865-80 SPX.

As noted previously, even a bearish c-wave could extend as high as 2071 (and a bull wave would make new all-time highs), so without an impulsive decline (and a corresponding top) to act against, front running a wave like this can be hazardous to one's account, especially since there are no clear stop levels.

I haven't been front-running this wave; I've been waiting for an impulsive decline to act against.  I haven't been trying to "predict the top." I've been letting the market lead, and I trust it will tell me when it's time to flip short.  I learned this approach the hard way, as I imagine many bears are learning it now.  For what it's worth:  The upside for bears is that often we don't learn except from our mistakes -- when we win, we don't really think too hard about what we could have done better, and no growth takes place.  But when we lose, we truly challenge ourselves to grow and improve.

Back to the updates:  Do we want "long-dated predictions with conviction" during an unpredictable wave? Or do we want to protect our accounts and/or make money? My goal -- especially during a wave like this one -- is the latter. The position of this wave is ambiguous in the big picture, and there are at least 3 wholly viable big picture options here. Because of this, I've been watching the ST waves to determine if the pattern looked like a top -- and I simply haven't seen one yet. That has led me to consistently lean toward the idea that we were still headed higher, and I believe I've conveyed that:

10/9: "In conclusion, there are several upside inflection points for the bear count -- but bears should keep in mind that we've never been able to rule out the possibility that Wave IV completed at the crash low. The preferred near term count has had us looking up since SPX reached the target of 1865-80, so it's not as if we've missed out because we were "too bearish," as many others were -- it's simply a good idea to let the market lead now, and wait for clear signals."

10/12: "We're into a zone where we should probably at least begin watching for topping action, though one formula suggests this wave could run as high at 2071 +/- before experiencing any correction more significant than the one we saw on October 2 -- so Friday's warning to "let the market lead" remains in effect, at least until such time as it leads us to a more clear suggestion of a correction."

10/14: "In conclusion, we can't rule out an immediately bearish wave -- i.e., we can't rule out the idea that ALL OF (c) is complete. However, that presently appears to be at least a slight underdog to the idea that (c) (or "3" for the bulls) is still unfolding. If bears begin claiming levels that should be acting as support, then we may have to give bears more credit."

10/16: "The last signal was to buy support, and there's nothing to reverse that signal yet."

10/19: "It's quite possible there's more room for the rally to run, and my instinct is that it probably will run at least a bit farther, possibly after a correction."

10/21: "There's just nothing to add based on the recent action, except to note that the longer SPX hangs around the current price zone, the higher the odds that the current wave extends. As I've noted on several occasions, the "textbook" target for the current wave is 2071 +/-." and: "Bears should remain cautious if SPX can sustain trade north of the blue dashed resistance line."

As I wrote the other day (in our forums): Maybe I'll miss the top by a few points. Heck, maybe we'll open down 57 points tomorrow, and the perfect entries will all be gone. I'm okay with that. All I want is an impulsive decline that fits as an A or 1 wave as a level to act AGAINST, so I'm not shorting blindly into a freight train rally in a market that has left its options open.

Believe me, if I start to see something that says "short this pig NOW!" you guys will be the first to know.

So, where are we now?  Well, although bulls will likely feel pretty good about today, the market is still keeping its intermediate options open.  Let's start by looking at the complex flat I posted a few days ago.  This count has taken the lead for the available bear counts; while the bull count remains that Primary IV bottomed at the crash low:

One index to keep an eye on here is BKX.  BKX may help determine if SPX, et al, are going to continue their respective rallies immediately:

Finally, the 30-minute SPX chart.  If the current rally in futures sticks, SPX will exceed the 2071 target that I began talking about back on October 12.  One potential new target is discussed, but extended fifth waves can be notoriously difficult, so we'll see how it plays:

Finally, a late addition:  a simple, but interesting back-test is underway:

In conclusion, we caught the exact bottom of this wave, and the near-term wave patterns have kept us on the right side of the trade for the entire rally.  We're getting into a zone where the all-time high is at least close enough to function as a level to take action against, but that, of course, does not in itself guarantee that the rally will end.  Trade safe.

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