Monday, December 7, 2015

SPX and BKX: "Why Yes. Yes It Is."

Last update (See: "Is the Recent Decline a Buy Op?") determined that a near-term expanded flat was the most probable pattern:

In conclusion, because of the near-term pattern in SPX, I'm very slightly inclined to think that the recent waterfall decline is actually the c-wave of an expanded flat, and therefore destined to recover...  In a perfect world, bulls would like to see SPX rally from here, and bears should stay nimble since the decline could have been a small second wave and about to launch back up.

Friday's market obliged that outlook.  It's funny how well Elliott Wave works once the market tips its hand... sometimes we have to wait for a while for that to happen, but it does happen eventually.  One of the keys to successful trading is patience, and I've always liked the following quote from the movie Rounders (which was about poker):  "Get your money in when you have the best of it; get it out when you don't." 

Patterns that provide us higher-probability reads can be likened to starting with pocket Aces in Texas Hold 'Em:  They don't guarantee you're going to win, but they do put the odds in your favor.  Patterns with no clear reads are similar to playing a starting hand such as jack-8 off-suit.  Maybe you'll get lucky and win -- but most of the time you're just handing off your money to someone who holds a better hand than you, and/or who has more discipline.

Let's get to the charts.  SPX was the "tell" on Thursday, because the subdivisions didn't fit for a bearish pattern -- and I hope I conveyed that well enough in Friday's pre-market update:

Bigger picture, SPX could still make things difficult for everyone:

BKX already broke its prior swing high.  Although its options are the same as SPX, I'm continuing to track it as something of a "compare and contrast" litmus test against SPX.  If one or the other starts diverging, it might clue us in early to the market's next intentions:

In conclusion, the near-term waves were clear on Thursday night and allowed the read for a "launch back up."  At this juncture, though, the market does have a couple options.  At the minimum, I would expect SPX to break 2097 from here, but at that point, we do have to stay alert to the potential for an even more complex flat.  Trade safe.

No comments:

Post a Comment