Wednesday, January 24, 2018

SPX and INDU: Next Upside Targets Captured

In the prior update, I noted we had reached a potential inflection point, but that if bulls could power back over the all-time-high, that would signal the all-clear.  The next targets for SPX in that event were 2819-20 and 2840-50, both of which have since been captured.  The next target is now 2858-65, then 2869-75.

Bigger picture, we're reaching another long-term trend line, so it's worth paying attention to how INDU and SPX react to this:

In conclusion, the market appears to be in the midst of yet another extended fifth, this one having begun at 2792 SPX.  The textbook target for this wave would be 2869-71.  If we stall anytime soon (for more than the very short term), then we could see a few sessions of backing and filling, including the possibility of a retrace as deep as 2800.  Keep in mind, though, that there are no guarantees we'll stall, which is why we're still watching for an impulsive decline before attempting any top calling.

Here's another thing about extended fifths:  Because they are fifth waves, they set off everyone (even non-Elliotticians) "topping signals."  But because they extend, they then blow right through those signals and leave everyone who wasn't wise to the potential of an extension scratching their heads.  And missing out -- or worse, losing money being wrong-footed. 

We've been wise to the extended fifth for the past several months (and past several hundred SPX points), and it has saved us countless dollars of loss, and earned us significant profit.  While Elliott Wave is my go-to market tool, I have been doing this long enough to (sometimes, not always) recognize when a wave is extending (as I did in this case), and when that happens, you pretty much have to throw almost every technical system out the window for a time.  Technical systems, just like fundamental systems, are based on the past and the "average" performance of the past.  Extended fifth waves are outliers, though, so they render "averages" pretty useless.

The point I'm getting at is that while I know everyone wants to see wave counts, there's a time for that, and there's a time to simply let the market lead while you just go along for the ride.  We are now in a larger inflection point, as shown by last update's long-term COMPQ chart -- but unless and until the market gives us a signal that it's done extending (in the form of an impulsive decline), we're just going to keep riding along with it.  Trade safe.

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