Friday, November 13, 2015

SPX, INDU, NYA: Market Still in No Man's Land

On November 2, I warned that it may be time for a correction, but that turned out to be just a hair early.  Nevertheless, given the unusual nature of this wave -- and the fact that we expected a trade-able bottom back in September (at SPX 1865-80), and the near-term waves kept us leaning higher until the end of October -- it wasn't bad timing.

2116 was an incredibly interesting price point for the rally to stall at, because it keeps the most bearish options on the table.  The bull option is obvious:  Bulls want this decline to be a fourth wave that bottoms reasonably directly and heads to new all-time highs.  That's entirely possible, and I wouldn't rule it out.  But I personally wouldn't bet the farm on it, either -- at least not until we start seeing some impulsive rallies.

On INDU, I began showing the options for a large flat back on October 16, and the chart below shows that the minimum requirements for that pattern (particularly: a 90% retrace of the decline) have since been met:

Finally, NYA shows the potential that the recent rally may have been an ending diagonal c-wave (at least, in this index).  If the pattern shown below whipsaws significantly, then bears might want to be cautious:

In conclusion, this has the potential to turn into a nasty and deep decline, so it's not advisable to front-run this wave.  I'm somewhat tempted to begin favoring the intermediate bear counts, but I'll give the bulls a little more time, to see if they can turn this into an expanded flat (c) wave, since this is still something of a no man's land.  Basically, it seems advisable for both sides to remain well aware of the worst case scenarios here, at least until the market dictates otherwise.  Trade safe.

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