Monday, March 16, 2020

SPX and INDU: Preferred Target Captured in Full -- Can Bulls Find Support Here?

So the Fed finally announced QE 28 (or whatever number we're on now) and zero interest rates and free balloons for the kids, and everyone is freaking out because the market isn't responding on a dime... but people do need to keep in mind that the money doesn't typically hit the market instantly.  Here's a chart showing the first three QE announcements vs the S&P 500:

(chart source)

We can see that in the case of QE1, the market was still several months away from a bottom.  QE2 came during an uptrend, as did QE3 -- but there was still a sell-off after the QE3 announcement, even in the context of an ongoing rally.

Thus, it's a bit premature to proclaim: "OMG, it's NOT WORKING!"

I think what's scaring people this time is the sheer speed of the decline.  At the present trajectory, if the current QE program doesn't have an impact for several months, then the S&P will be trading below zero before it does.  Obviously, that's tongue-in-cheek and not going to happen.  But we can certainly trend lower -- potentially MUCH lower, as we'll see -- but bears do need to remember that in itself doesn't mean QE 28 isn't working and will never work, or that the Fed won't get even more aggressive.

If the large B-wave high is correct -- and, given that the market has followed the projection of February 26 to a T so far, we have no reason to believe it isn't -- then at some point QE WILL work, and the market will rally toward new all-time highs.  And it will likely trap a whole lot of bears when it does -- but one day at a time, and with declines that lose 10% per day, the market could well make much lower lows in the interim.

Because, ultimately, the Fed is trying to prevent a massive margin call/credit event.  These are indeed dangerous times, and the market knows it.

Nevertheless, it might do bears good to remember that the Fed's purchases don't begin until Monday (today), with a first installment of $40 billion.

So:  Could the market bottom fairly directly?  Indeed it could.  As I noted last update, we were in the ballpark where we could count five complete waves down from the all-time-high, but I felt that the pattern would probably look a little cleaner with a new low (still not required, but preferred).  Perhaps today/tomorrow we get that new low, and that completes the pattern.

What bulls need to fear here is the dreaded fifth wave extension.  And the market is indeed in a position where a fifth wave extension could materialize, so I urge bulls to remain VERY cautious.  Because the worst case scenario is mind-bogglingly bad.

The worst case extended fifth scenario is...

Are you sitting down?

12,177 +/- on the Dow Jones Industrial Average

Am I predicting that?  No.  Not yet, because the market could put in a standard fifth here, and bottom relatively soon.  But I want it out there, because bulls have been trying to knife-catch for a while, and I have to believe it's killing them.  We have yet to see an impulsive rally.  And as my standing advice has always been at such times:  It is wise to await one.

That said, if one has shown discipline the whole way down and patiently awaited the target zone, then this is one area one MIGHT dip a toe -- we'll look at why in the upcoming charts.  (btw, NOT trading advice; this is an unprecedented market.)

Either way, let's look at where we are, starting with the INDU micro count that Stockcharts failed to save on Thursday evening.  I swear on all that is holy that Wave IV ran to RIGHT WHERE I HAD IT DRAWN.  Long-time readers know me well enough to know this is actually pretty common for my work.  INDU's new low today will potentially complete the pattern for a STANDARD (non-extended) fifth.

Next, the longer-term chart, where we can see two channel support zones.  Horizontal support (which theoretically should exist) is not shown on this chart:

Next, note the preferred count target on INDU will be captured as of the open (added just now, after the open, to show this) -- a pretty historic call, if I do say so myself:

Next up, a chart being shown simply to note that the prediction was captured (likely won't show this chart again), simply to "close it out":

Finally, SPX, which does NOT need to break its comparable low:

In conclusion, last update noted that the charts would look better with a new low, and we will get that new low today.  INDU has captured its preferred target, which gives me bragging rights for the next decade (possibly beyond, lol).  If the market does a STANDARD fifth wave, then it could very well bottom soon.  If it does an extended fifth... well.  All I can say is let's hope it doesn't.  Trade safe.

No comments:

Post a Comment