Friday, October 12, 2018

SPX, INDU, BKX: Finally

I started warning on October 5 that the trend might be changing, and noted that

...yesterday's low appears to be critical for bulls, as it's the dividing line between a complete ABC decline, and an impulsive decline that would suggest a larger trend change.

We broke that low, and at that point assumed the trend had changed to down.  On Monday, I discussed that we would head forward under the assumption that the trend had indeed changed, and that it was even possible we were ultimately headed for a big decline.

Then on Wednesday, I gave two near-term targets:

If B/2 completed yesterday, then we would expect SPX to head toward a first target in the mid-2820's, with a shot at a second target in the mid-2780's.

And SPX closed the session at 2785, which is about as good an outcome as any prognosticator can ever hope to achieve.  I also (again) noted that it was possible ALL OF the long-anticipated B-wave had completed at the recent all-time high, meaning we were ultimately headed into the 2500's.  Given the "mini-crash" nature of the decline so far, I think that's the assumption we have to operate on.  The charts seem to agree, with BKX showing a pattern that rarely bottoms immediately (on an intermediate basis -- this does not preclude near-term bottoms of course):

INDU was always the "tell" for me, and its pattern at the 2018 low is the reason I clung to the B-wave as the preferred count even after SPX hit new all-time highs:

The "textbook" target for SPX would actually be in the low 2400's.  I can't promise we'll get there, of course, but that would be the "usual" expectation.  The last leg of the current decline was clearly an extended fifth, so I'm curious if SPX will mount a larger rally here.  With extended fifths, it's hard to tell sometimes, as the wave can just keep stacking extension upon extension and decline relentlessly:

In conclusion, the price action suggests we have indeed entered the long-anticipated C-wave decline.  C waves are sometimes called "crash" waves, so bulls should maintain extreme caution until there are signs of a meaningful bottom.  Trade safe.

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