Friday, April 15, 2016

SPX Update

A week ago I wrote:

In conclusion, INDU's decline is impulsive, although NYA shows how that impulsive decline could be a bullish C-wave.  SPX is trying to look like a completed ABC decline.  Everything in the pattern is designed to make bulls more bullish and to scare away bears -- but, for whatever reason, I'm not buying it.  Maybe I'm wrong, and we'll rally straight on to new highs; this is a very tricky pattern, because it does "look" bullish on the surface -- so, for that reason, I'd suggest only low-risk entries for bears who are inclined to trade against it.  Trading, at its essence, boils down to calculated risks, and not all of them will win; thus it's important to consider the other side of the trade, and to keep losses manageable. 

It turns out that the pattern was exactly what it appeared to be (an ABC decline), and I was indeed wrong not to buy it (both literally and figuratively).  On the plus side, at least I had the decency to warn bears not to get too aggressive.  This is certainly not the first time I've been had by one of these Central Bank-driven "we're going to break all the records!" rallies.  As the saying goes:  This is not your father's market.  It might be more akin to your grandfather's market, assuming your grandfather was around during the roaring 20's.

Last update, I noted that if SPX could sustain a breakout over 2075, then it suggested a first target of 2090 +/-, which was captured yesterday (within two SPX points falls into the +/- category).  On the chart below, I'm showing SPX in bull (5), but be aware that there's no way to rule out a extended wave yet, so it could run toward Target 2 if it wants.

On Monday, I had discussed BKX as a possible canary in the coalmine, and mentioned that a breakout could be dangerous for bears.  BKX has since broken out, but we'll give it a session or two to see if that sticks.  If it does stick, then bears might want to stand aside until such time as the market declares them back in the game, because that pattern has the potential to be quite bullish on an intermediate basis.  The last bear patterns there are double-zigzags and such, which are never obvious while they're forming, so bears will just have to be patient for the time being.

I've drawn up a near-term chart based on the current 1-minute pattern, with caveats as written.  If we do get the move as shown, it does have the potential to mark blue c for a small fourth wave.  If it develops into a five wave decline (beyond blue c), then we'll know to watch for a bigger turn.

Incidentally, if we sustain a breakdown directly without a whipsaw, then this pattern has the potential to be more bearish than shown.  The simple version is that yesterday's decline does appear impulsive, so more downside is expected, either after the chop as shown, or more directly.

In conclusion, the breakout in BKX has the potential to be bullish if it sticks, so we'll keep a close eye on that heading forward.  Trade safe.

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