SPX and COMPQ Updates

Way back on June 17, I wrote:

I do suspect that if SPX forms another scary wave down, this is probably not the end of the bull market yet, based on INDU and NYA.

We never even got another truly "scary" wave down -- so that call, at least, was easy.  Pretty much nothing else about this market has been.

Friday's update warned that, after a string of near-term wins, the pattern had taken us as far as it could and that things were now up in the air.  I attempted to heavily underscore that warning with:  

"The simplest version of this pattern is potentially complete -- so further lows are OPTIONAL but not NECESSARY."

Friday's update as a whole intended to convey that the market was behaving, as that update so eloquently put it, "insane."  

Monday's update then attempted to detail the potential triangle that was, at that time, still on the table as one of the "2,896.5 potentially valid near-term patterns" (Friday's quote).  The triangle turned out to be a no-go, which we knew for certain the very instant SPX broke above 7581.50 (this level, too, was discussed in Friday's update).  

And as I also wrote Monday:

Ultimately, bulls are basically just looking for SPX to make a new all-time high, which would reset most of the bear options and give bulls a clean slate.  

So on Friday and Monday (before the session), while we didn't know what the market would do next, we at least knew that we didn't know -- and tried to convey that clearly.

It now appears that the rare bull pattern discussed on Friday was probably the pattern we were in:

The more bullish option (not shown) would be that we just lived through a rare RUNNING flat (where the wave C decline fails to break the wave A low) and the decline is entirely over, with SPX headed to a new all-time high.

Rare patterns are, by definition, unusual (obviously), so the tough thing is: you can't bank on a rare pattern.  That would be like betting the coin flip will land on the edge of the coin instead of on heads or tales.  Sure, it happens.  But rarely.  The best you can hope to do is identify such patterns when they're possible -- and get out of the market's way when ambiguity is high (or hedge heavily, if you know what you're doing and understand that hedges will go to zero if the market keeps grinding).

COMPQ is the most interesting chart out there:

In conclusion, the triangle died during Monday's session and bulls ran with that on Tuesday.  This is now the type of market that's best served by just drawing an uptrend (melt-up) channel and not even giving thought to countertrend trading unless the market can sustain trade below it (and maybe not even then -- countertrend trading is often brutal, as we just saw).  Trade safe.