SPX and COMPQ: How the Market Resembles the Weather

Back on August 8, I wrote:

INDU's wave count implies at least one more small wave up still due -- that would be negated if it breaks its most recent low (or if SPX breaks down at blue above).  But as long as those zones hold, then bulls are clear for the uptrend to continue at least a bit longer... though again, we are still in trickier waters here, in the sense that there's a fair amount of overhead resistance, and the possibility for a fifth wave to complete soon.  So until the market breaks out solidly over resistance, it remains ill-advised to get too complacent here. 

And really, for the last month or so I've continued leaning toward more near-term upside, with the caveat that we're still in a larger inflection zone.  Nothing has changed in that regard, but I do want to expand a bit on this.  If you're not experienced with analyzing markets, you may wonder why I can't just proclaim what's going to happen here and be done with it -- but the challenge is that I'm analyzing two very different time frames and getting different signals from them.  The near term pattern has continued to suggest "a bit more upside" (which has happened), but longer-term, we're still within a major inflection zone.

So it's a bit like forecasting the weather:  "Looks like it will be sunny tomorrow, but there is a major hurricane 800 miles off the coast.  As of right now, the cone of uncertainty around the hurricane's projected track is so wide that we're not sure if it will hit us head on -- or miss us entirely.  Best to make preparations just in case."

That's exactly where we are here.  I can't declare an "all clear" yet, because the hurricane is still out there -- but I likewise can't confidently say it's going to hit us yet.  It's there, heading in our general direction, but it may veer off and miss us entirely.  We just can't say one way or the other (although, "won't say" is more accurate; I simply think it's undisciplined at this stage to do so) with high confidence until we see a bit more of the hurricane's track.

So, I've prepared a couple more long-term charts to help illustrate the situation, and an early warning sign.  First up is COMPQ:

Next is SPX, which shows the fresh breakout and the first zones bulls want to hold:

Finally, the SPX near-term chart notes we've reached or are near the next near-term inflection -- though this doesn't guarantee anything, it just offers the market an opportunity:

In conclusion, I'll continue tracking the hurricane's progress, and if it looks like it's veering straight for us, then we'll act accordingly.  Trade safe.