Wednesday, April 6, 2016

SPX, NYA, INDU: More Downside to Come?

Monday and Tuesday made for interesting sessions, inasmuch as we finally had a truly clean, complete-looking five wave rally into Friday's close, and Monday and Tuesday saw the rally stall and reverse.  A week ago, I wrote that we were finally into price territory where I was willing to commit to the assumption that "the top is closer than the bottom," and I'm sticking to that call until such time as the market suggests otherwise.

Incidentally, a week prior to that (on March 23), I warned that the rally was likely running out of steam and that the market was entering chop zone territory.  SPX had closed at 2049.80 when I wrote that warning... and here we are two full weeks later with price only having moved a net of -4 points (yesterday closed at 2045.17), so I believe we can put that call in the "plus column."

So what next?

Well, combined with the warning indicators I've discussed over the past couple weeks, we do finally have a potentially-complete five-wave rally structure (as noted Monday) -- and, perhaps more importantly, we have a downward reversal after the apparent fifth wave completed.  While we don't yet have a large impulsive decline, the wave structure does suggest that the downward wave is incomplete, so a larger decline wave could yet materialize. 

Overall, we have mounting evidence that the trend may finally be turning back toward the bears' favor.

Let's take a look at the charts, starting with SPX.  Presuming we're dealing with at least an ABC down, then 2000-2010 is reasonable.  This next statement is a little ahead of the near-term structure (which hasn't confirmed a larger impulsive decline), but if we just saw the end of the preferred intermediate count's C-wave, then the next target is south of 1810.

Next is INDU, which, unlike SPX, has broken both its uptrend lines:

Finally, NYA is the one potential fly in the ointment for bears, in that it did not provide a clear top.  The top in NYA is muddy because it could be a b-wave -- but if it is, then it is either building an ending diagonal for the C-wave (we'd know this because it would bottom directly), or gearing up for a significant C-wave decline.  I'm more inclined to think it's the latter IF this is a c-wave decline (as opposed to the start of a new impulsive decline).

The short version of all that:  If NYA fails to bottom fairly directly, then even the bullish count suggests a decent decline before it's all said and done.

In conclusion, while we don't yet have confirmation of a larger turn, the evidence continues mounting in favor of the bear case.  Barring an almost-immediate reversal (to complete a bullish diagonal in NYA), we're likely to head lower over the coming sessions.  Trade safe.

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