Friday, June 24, 2016

SPX Update: Millions of "Leave" Voters Charged with Insider Trading

Yesterday, Britain voted to exit the European Onion (EO), and today the world breathes a sigh of relief.  Or at least those of us who inherently distrust large central banks do.

Some have called this exit vote a "black swan event," as if there was no way anyone could possibly have seen this coming.  Certainly no one could have foreseen the possibility of a rally to retest the all time highs, followed by a sharp decline.  And they most certainly could NOT have anticipated that possibility all the way back in February near the low, could they?  Because, if they did foresee this possibility, well, that would throw a huge wrench in the whole "black swan" theory.  It would actually suggest that the charts LEAD the news.  If you can imagine.

No, surely no one could have foreseen this "unexpected" catastrophe from that far away.  Here's a chart from February that decisively proves nobody could have predicted a retest of the all-time-high, followed by a "black swan" event that crashes the market.

Err, wait a second... what's that black "Bull: C" path doing on there???

Hmm... Maybe the charts DO lead the news, and not vice-versa as the news organizations would like you to believe.  Because, after all, if everyone accepted the premise that the charts lead the news, then what exactly would traders and investors even need the news for..?

Moving on to today's charts, the recent near-term pattern does leave some unanswered questions -- for example, ES (the e-mini S&P futures) actually broke the early June high, which confirmed that the expanded flat pattern I was worried about on Friday was entirely correct.  However, it appears cash isn't going to get the opportunity to break its equivalent high at 2120.  This creates some questions for the wave counts, but rest assured that I'll be trying to answer those question as soon as possible.  In the meantime, I'm going to assume the most straightforward version of the decline, because I really have no choice BUT to assume that, at least until the market shows some sign of bottoming.

The chart below discusses one potential "bull" option which answers some of the questions posed above.  However, even that option likely doesn't find support until the 1900- zone:

It's also time to update the TRAN chart, because I believe this chart may offer some additional clues to the near-term, and to the bigger picture.  Long-time readers will recall that I turned bearish on TRAN within a few points of the top, and this market still appears intermediate bearish:

The SPX 2-hour chart is below:

I'd also like to share something I published in our forum last night, around the time that ES [the e-mini S&P futures] was limit down, because it "bears" repeating:

At the current rate of decline, ES would be at 0 in roughly 20 days. Obviously, that ain't happening... but it's human nature to get carried away by the moment and project the last few hours or days in a linear fashion.  So, point being: Don't let yourself be the guy who gets upset when the market bounces. Be careful when you catch yourself thinking: "Why is it rallying? What changed?" What changed is: nothing. The market is NOT going to zero, THAT'S why it's rallying (in our hypothetical future).  And, even if it was going to zero, it's not going in a straight line.

In conclusion, as I've discussed over the past week, the pending breakdown at 2050 can only be viewed as bearish -- assuming, of course, that cash follows ES' lead and breaks 2050.  For now, despite some ambiguity near the high, we're just going to presume the most bearish straightforward count and try to adjust in real-time if it becomes necessary.  I should note that all of this is predicated on bears sustaining a breakdown at 2050; if 2050 doesn't break, then bears have no confirmation of anything and the expanded flat discussed Friday, Monday, and Wednesday would remain on the table.   Trade safe.

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