Friday, February 26, 2016

SPX, NYA, INDU: Title Good 'til Cancelled (Unlike Stop Orders)

Last update noted that SPX finally formed its first impulsive decline since the rally began, and that "this is as good a signal as bears have had since the bottom at 1810."  Unfortunately, that impulsive decline was simply wave A of an ABC correction, and wave C bottomed shortly after the open.  Still in all, bears who waited for that impulsive decline were able to avoid shorting into the first 100+ points of rally, so things could certainly have been worse.  Not every signal works perfectly, especially in a market as vague as this one, but as long as one manages risk and maintains discipline, then one can hopefully avoid catastrophic damage to one's account at the times when the market runs the other way.

Since then, SPX was able to break 1947, which at least eliminates some options from consideration.  This is a tricky position now, because the larger count isn't 100% clear-cut -- but this break of 1947 certainly isn't entirely unexpected.  Let's look at a few charts, starting with SPX:

Zooming out a bit on SPX, let's finally update the bigger picture chart (you know the chart I mean -- it's the one where I basically said "my work here is done" back on January 21, and haven't updated since):

NYA is still below resistance, and looks to be entering the zone we anticipated:

Finally, INDU:

In conclusion, IF this is a fourth wave (and that's always an "if," since we know to "never bank on fifth waves"), then this pattern fits the expectations of a flat correction quite well.  The challenge, of course, is that classic technical analysis would view this as a bullish double-bottom pattern, and project it to run approximately the width of the initial pattern (about 100+ SPX points higher from here).  Until we see some key price overlaps from this rally, I'm more inclined to think it's simply a complex fourth wave, and will be interested to see how SPX reacts to 1963-70.  Of course, there are no guarantees in an ambiguous market, so the more conservative path would be to await an impulsive decline, which provides both more information, and a clear level to act against.  Trade safe.

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