Friday, January 19, 2018

SPX and COMPQ: Government Shutdown Would Be Irrelevant -- but the Charts Are Interesting

Last update noted that we had three complete waves down, and that inflection point triggered a rally back to the all-time high, which leaves another option we discussed still on the table, specifically:

Bears also have options for a complex 3-3-5 correction, where SPX could rally up to retest/break the ATH, then drop back down in a larger 5-wave C-wave. 

Of note, the market has now gone 394 sessions without so much as a 5% drawdown, which is tied for the longest stretch in history.  As I've mentioned previously, this market has clearly declared itself to be an outlier.

The big news in the headlines right now is the threat of government shutdown.  This is usually spoken of in bearish tones, but such an event is not necessarily bearish.  And I'm not just saying that because the Federal Government tends to get in the way of things, but because this is what history argues.  The last government shutdown was in 2013; it lasted 16 days, and SPX gained 3.1% during that period.  The two prior shutdowns, both in 1995, were also both net gainers. 

SPX's biggest losing run during a shutdown was back in 1979, under Jimmy "I Got Attacked by a Swimming Rabbit" Carter.  That stretch lasted 11 days, and SPX lost 4.4%.  But that also occurred in the context of a larger bear market, so there's that.

Nevertheless, the chart has left options for bears as of this moment.  SPX currently has a three wave rally off the low, so if it wants that 3-3-5 correction we spoke of, it is technically possible from the current inflection point.  If the market REALLY wants to mess with everyone, the government shutdown could be averted and the market could correct on the news that it's NOT going to shutdown.  That's not a prediction, I simply mention it because the market loves to do stuff like that, so bulls should not assume that "no shutdown" automatically equals "no correction."  Bears should likewise not assume the inverse.

Bigger picture, I do have to mention that we're finally into the margin of error for the long-term count we've been looking at.  I'd be a little surprised if this began immediately without at least one more all-time high (and might be surprised if this begins at all, the way this market has been!), but it has to be mentioned anyway:

In conclusion, we have reached a near-term inflection point, and are within the margin of error for a larger inflection point as well.  There are still no clear sell signals, but if bears wanted to take a little shot this close to the all-time-high, you could hardly fault them for trying.  Trade safe.

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