Monday, December 18, 2017

SPX, COMPQ, RUT: Remember that "Blow-Off Top" We Discussed a While Back...?

Last update expected at least one more leg up was possible for the near-term -- but we weren't really looking for this blow-off here just yet... though we noted that bears' best hopes seemed to be for a b-wave expanded flat.  I was somewhat suspecting we might see a more complex iv over the near-term, but it now appears that may have completed as a rare running flat (see SPX chart "or C of iv" label).  The near-term hasn't been the easiest to track -- but at least the b-wave high was a clear signal that we were still pointed higher over the next larger time frames.  The large rally on Friday implies that the b-wave bears were hoping for (it's bad when bears' best hopes continually seem to be nothing better than b-waves) is probably off the table, and that we're unwinding another impulsive rally.

(I'm having random color scheme issues, hence the off-font/color above)

The good news for bears is that at least when this ends, there will be a chance that we've put in ALL OF 5... although that's probably not where our focus should be just yet, given how many times the fifth wave of each rally leg has extended.

Let's start with SPX, which is going to capture its next upside target zone (note typo:  "blue i/ii" should be "blue 1/2"):

COMPQ is still a bit shy of its ideal long-term target, so if this holds any water, the rally may still have some life left:

The one potential ??? in the equation, at least for the near-term (if not longer), is RUT.  RUT followed my blue preferred path to the letter so far... now we see if it will reverse into another leg down.  If nothing else, this may give bears a target to shoot at, at least as long as RUT doesn't sustain a breakout over the ATH:

In conclusion, a few months ago, I began talking about the possibility of an "extended fifth blow-off top," and it appears that's what we're now unwinding.  These can be very difficult to trade if you're a bear, but they're gobs of fun (for as long as they last, anyway!) if you're a bull.  The thing about extended fifths is that they do tend to retrace rapidly, so once this ends, it's going to catch a lot of bulls by surprise.  Bears and bulls will likely both get one good shot at an exit/short entry, since extended fifths virtually always perform a predictable "double retrace" -- but the vast majority of bulls are not going to see that exit as an exit, which is exactly what leads to the second, deeper leg down of the "double retrace." 

We're going to do our best to accurately identify that one good shot when it comes.  Trade safe.

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