Wednesday, December 26, 2018

SPX and INDU: The Market is Random -- and Someday Trained Sheep Will Pilot the Concorde

The end of 2018 is fast approaching, so before it ends, I wanted to briefly revisit a piece I wrote on January 10, titled:  "Does 2018 Rhyme with 1987?"  In that piece, I wrote:

There is some present similarity to 1987 -- a year which saw a crash, but saw that crash come within the context of a larger bull market.  Most interestingly, the blue chips have created the perfect setup for a very similar situation this year. 

And it might not be too far off, relatively speaking.

Let's focus on just one chart today, but we need to caveat that we do not yet have impulsive declines in any major index, so this must be considered as purely speculative until we do.  As we've seen so many times already, fifth wave extensions love to tack on more fifth wave extensions, so we need to see an impulsive decline to finally signal at least a temporary cap to that trend.

Given the number of perma-bears who are now out tooting their horns saying they've been "warning about this" -- well... let's just say that some of these perma-bears have not STOPPED warning about this for many years, so they've missed the entire rally.  As long-time readers know, I am not a perma-bear; for example, I was very bullish by the start of 2013, and published long-term targets (for wave iii) of 2170 for SPX at that time.

I was likewise still bullish into the latter portion of 2017 when I was calling for an extended fifth rally -- and, as of the penning of that article, on January 10, I was still not bearish yet because we had no impulsive declines (and so had to recognize the ongoing uptrend); but I was growing increasingly cautious in recognizing that the structure was likely nearing completion.  As we can see from the above quoted paragraph, and from the sentence quoted below:

Amazingly, the last time I spotted an impulsive decline in SPX was back at the very end of November, so it's somewhat mind-boggling that we've gone this long without another one.

So, I wanted to call back to that article because, given the waterfall decline we've been witnessing, I think we can now definitely call that a "hit," and agree that 2018 does indeed rhyme with 1987.

(You don't get to hit huge calls like that very often, partially because they don't come around very often -- in fact, some people go an entire career without ever hitting one.  I would say it's the "call of a lifetime," but I'm torn between this and my 2011 long-term bearish call on oil to hit 25+/-... and my (then) bullish call on bonds back in 2012... and my long-term mega-bullish call on the dollar, also from 2011.  But for sure, Elliott Wave is all "dumb luck" -- and the market is completely "random and unpredictable"!)

Moving on to the current charts, the long-term INDU chart reveals the tag of an interesting trend line -- one which I called out as a potential target back on October 14:

SPX has reached a trend line of its own:

Given these factors, if bulls are going to put anything together, even short term, now might be the time for them to attempt to mount a defense.

If they do put a bounce together here, the odds currently favor that will merely be a fourth wave.  Nothing's impossible, but there are not many patterns that allow for a bottom here.  And just as we awaited impulsive declines at the start of the year before getting too bearish, we should await impulsive rallies now before getting too bullish.  As I wrote more recently, on December 17:

Bulls, of course, would want to show extreme caution on a sustained breakdown of 2583.  Nested third wave declines can be, as R.N. Elliott said, "a wonder to behold," so discretion is definitely the better part of valor where nested thirds are suspected.

Does that quote make more sense now?

Either way, that hasn't changed yet.  We're likely still in a nested third wave.

In conclusion, until we see a defined fourth wave, there's nothing to indicate a bottom is near, and -- amazingly -- there are even counts that allow the possibility that the decline is only halfway done, and while that may not be probable, it IS possible -- so this is still a very dangerous position for the market.  Trade safe.

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