Wednesday, November 4, 2015

SPX and INDU Updates: A Closer Look at the Big Picture

In the last update, we talked about the potential that it was at least possible that the rally might finally be due for a breather, perhaps after a minor new high.  We got the minor new high, but so far no real signs of a correction, although I'm withholding judgment on whether a correction will begin from this zone or not -- the minor new high was not unexpected, so it wasn't enough to completely toss out the idea of a correction (yet -- that could change in today's session, though).  At this point, we're into a zone that qualifies as a retest of the all-time-highs, so we can't (and shouldn't) rule out the idea that this zone could provide resistance.

INDU's long-term chart details the two odds-on favorite counts at this point:  Either this rally is Wave B-up of IV down, or ALL OF IV down is complete already.  A lot of analysts were calling for the start of a new bear market at the August lows, but it turned out to be prudent to continue reminding readers that a fourth wave correction fit the wave pattern -- and the expectations and projections from earlier in the year -- just fine.

Gotta admire the human tendency to want to believe the market will move in a linear fashion (bullish near tops, bearish near bottoms), despite the fact that observation repeatedly shows that this is rarely the case.  That's one of the reasons I'm refraining from getting too bullish here near resistance.  We stayed bullish from about 1880 until 2095 -- and 205 points of profit in about a month is probably plenty, so there's no need to push our luck here by becoming pig-headed.  Either the rally will keep running, or it won't -- we'll figure it out as it unfolds.

A few folks on the forum have been asking if this could be an ending diagonal (bearish wedge), and the answer is that, sure, it could be -- but IF it is, then it probably still needs another wave up.  The chart below is NYA, but outlines some of the qualifiers I'd look for in an ending diagonal vs. an expanded flat.  The bull count is that that overlapping mess is a very bullish nest of 1's and 2's that just runs straight to the moon:

In conclusion, the market is in the resistance zone from the all-time-high, but if this rally constitutes a resumption of the primary bull trend, then that zone may not provide any resistance.  If it's the B-wave of a complex flat (either intermediate-term, as shown on the second INDU chart; or near-term, as shown on the NYA chart), then this zone could offer "surprise" resistance.  Also keep in mind the USD/JPY chart discussed in Friday's update, which still has not cleared its resistance zone.  The bottom line is that this isn't the type of place I'd be willing to bet the farm in either direction.  Essentially, this is an inflection zone, and the coming sessions are make-or-break for any bear case (near-term or otherwise), and for any bull case.  Trade safe.

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