Friday, October 16, 2015

SPX Update: Market Validates Near-term Preferred Count

The preferred count in Wednesday's update anticipated that SPX was forming an expanded flat, and headed down to test support near the breakout level.  Wednesday's update ended with:

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.

Bears never broke support, instead the market did a perfect back-test.  On Thursday I did a quick "bonus" update at no additional charge (yours to keep even if you return the set of steak knives!), and noted that:

...we do currently have enough waves down for a complete C-wave decline, if that's what the market wants, and futures are currently green.  If that low breaks down in a significant fashion, then bulls should respect that as potential trouble -- vice-versa for bears if INDU can break back up into the topping pattern.

The low never broke, and the count of a complete C-wave decline proved out.

So here we are again, in an "the easy money is over" situation, and we're reduced to simple trend following until the market gives us its next clear signal.

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.

In conclusion, the preferred near-term counts have been consistent big winners recently, but at the moment, there's nothing new in the chart to draw a new short-term signal from.  The last signal was to buy support, and there's nothing to reverse that signal yet.  The next signal will come soon enough.  Until then, trade safe, and have a great weekend.

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