Tuesday, January 19, 2016

SPX, INDU, XVG: 25-Year Chart Suggests Major Inflection Point

While I've remained consistently bearish for 200 points of decline in SPX, the waveform has finally worked its way into a position where it has enough technical structure to at least allow for the potential of a complete decline wave.  Thus, it's not a bad idea for bears to be cautious at current levels, and allow the market some room to bounce, and possibly to form a complex correction.  I've detailed one version of a complex correction below, on INDU's chart:

SPX might follow a similar path.  Frankly, there's not enough structure (in the form of a bounce) to consider this as anything other than speculative at the moment, and it's entirely possible for the market to keep dropping here -- but again, it's certainly prudent for bears to at least remain somewhat cautious now, in the wake of 200 points of profit.

On the chart below, I've noted the outside possibility (in black) of enough fourth and fifth waves to form a complete decline.  I'm not favoring that view, but it's technically possible:

Last but not least, this weekend I took a detailed look at the Valueline Geometric Index ($XVG). 
The website descibes this index as follow:

On June 30, 1961, we introduced the Value Line Composite Index. This market benchmark assumes equally weighted positions in every stock covered in The Value Line Investment Survey. That is, it is assumed that an equal dollar amount is invested in each and every stock. The returns from doing so are averaged geometrically every day across all the stocks inThe Survey and, consequently, this index is frequently referred to as the Value Line (Geometric) Average (VALUG). The VALUG was intended to provide a rough approximation of how the median stock in the Value Line universe performed.

The chart below provides an interesting look at the long-term potential of the current wave structure in XVG, and also shows crude oil in the bottom panel:

In conclusion, we're into price territory where some degree of bear caution might be in order -- but do understand that there is no basing pattern evident yet in the wave structure, thus I cannot definitively call for a significant bounce.  This is more of a technical potential to be aware of at the moment.  As noted previously, the current decline does fall into the third wave position, and third wave declines are notorious for failing to bottom where indicators and speculation say they "should" -- so, until we have a bit more wave structure from the market, both bulls and bears should remain nimble.  Trade safe.

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