Friday, January 15, 2016

SPX, INDU, RUT: Updating the Big Picture

Not much to add since last update -- SPX reversed lower from the noted MB: 4 inflection zone, then proceeded to break the prior low, which validated the ST view that the bounce was simply a countertrend corrective wave.  That could be all she wrote for that correction, but there is always the potential for that fourth wave to become more complex (the b-waves of complex corrections are allowed to break prior lows or highs, while still functioning as part of an ongoing corrective sequence -- so a break of the low doesn't guarantee the end of a fourth wave).

Today, we'll also take a look at some of the bigger picture charts.  First, the updated SPX chart:

Next up is RUT's updated chart.  RUT appears to be tracking into its first downside target zone.

Finally, let's update INDU's chart from November.  Folks have been asking if the decline is part of Primary IV, or the start of a new bear.  My argument from the beginning has been:  It doesn't matter.  On December 21, I announced that it was my belief that we were on the cusp of a significant decline (See:  TRAN Warns of Potential 4000 Point Decline in the Dow Jones Industrials), and INDU has lost roughly 1000 points since then.

My thinking is this:  At the point which the market clearly states that its intention is to head markedly lower, I don't see much value in worrying about whether that large decline will be a fourth wave, a second wave, or the start of a new bear.  No matter what the case, once the market says its heading lower, possibly a lot lower, my trade bias will be to the short side.  From there, I trust the market will tell us when the decline is wrapping up, just as it told us when the rally was ending.

And we can only trade the present, after all.

In conclusion, there is still nothing in the charts that indicates a significant bottom is forming.  That could always change tomorrow (well, not "tomorrow," since tomorrow is Saturday.  It's just an expression!  Sheesh, don't be so literal.), of course, but as was just mentioned, we can only trade the present.  While I was able to accurately predict the August 24 crash, I'm not quite willing to "call for a crash" here, but do be aware that the potential is certainly present in the current pattern.  In any case, whether we get a true crash or not, the waves still appear to be pointed lower for now.  Trade safe.

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