Bulls in Trouble

Well, given the shape of the rally and yesterday's subsequent downside price overlap of some key levels, I think it's fairly safe to say the bears still have control of the market.  And that they're likely to retain control at intermediate degree for the foreseeable future.

The S&P 500 (SPX) was unable to do more than peek above its layered resistance zone, and that head-fake breakout immediately whipsawed -- and more significantly, then went on to overlap 1656, which was a key bull level.  The rally counts as a complete ABC, and suggests new lows on deck for the near-term.  (Note there is a fairly obvious typo on the chart below -- but for anyone who's bad at math, the lower annotation should read "1656," not "1556.")

I suspect the S&P 500 (SPX) will ultimately break my preliminary target of the low 1600's and head into the 1500's -- the biggest question in my mind is how we get there.  I'm inclined to believe that the rally was a second wave, but it's technically possible that it could have been wave (4) of the current leg.  I'll cover this in a bit more detail in a moment.

  
Before I get into the complicated hair-splitting technicalities, let me make a couple simple statements to keep confusion from popping up among readers.  I expect that near-term, we're going to make new lows.  I expect that intermediate term, the trend change we were anticipating is in the early stages, and the trend is now down.  So I'm bearish, both near-term and intermediate term.

The more subtle technicality is whether the rally we just experienced was wave (4) of the first leg down, or was instead the totality of the larger wave ii (much more immediately bearish).  I'm giving a slight edge to the idea that it was wave ii, but I'll present the counter-argument below, using the Dow Jones Industrial Average (INDU) as an example.  The Dow probably counts better as a fourth wave.  Note this picture is still quite bearish, it's simply a question of whether the bottom falls out immediately or not.

Bulls Haven't Accomplished Anything Yet -- Here Are the Levels They Need to Reclaim

Short on words today, so I'm going to let the charts do the talking, with a focus on the near-term.  Right now, I'm not sold on this being anything other than a retracement rally in a down trend.  In this update, I'll outline the levels which could change that.

First up is Scooby Doo's favorite index, the Russell 2000 (RUT ROH), which seems to have the clearest bullish overlap zone:

Second up is the SPX (if I had more time, I'd do seven charts, just so that I could get to "Seventh Up" -- crisp and clean and no caffeine.).  Note the ending diagonal, if it is such, could already be complete.

Note SPX is still facing further overhead resistance.  The possible wave counts line up nicely with the potential base.  A sustained breakout would lead to a strong third wave rally.  But, and this is a big "but" (get your mind out of the gutter!), we should never simply assume the market WILL break out over resistance.  If the market has become a bear, then basing patterns like this will consistently fail.

Nasdaq's WOPR Computer Breaks Down

Yesterday made for an interesting session, as the WOPR Supercomputer which controls the Nasdaq stopped working for about three hours.  When traders tried to enter or exit Nasdaq positions, they repeatedly received only the following message on their trading screens:

"All your base are belong to us."   

Panic quickly spread as confused traders tried to understand what this meant.  Paradoxically, the panic probably would have caused an outright crash had the exchange actually been working, which, fortunately, it was not.  The OMX Group, who operates Nasdaq, later held a press conference to reassure investors and explain the computer-related problems.

During this somewhat awkward press conference, the Group's spokesperson addressed the camera in monotone, saying, "People of earth, the machines are our friends.  There is no cause for alarm.  We have at last gained complete control of your finances.  Please now return to watching reruns of Baywatch, which are being provided on a 24-hour loop during 'The Transition.'  There is nothing to fear.  The Ben Bernanke is one of us.  The David Hasselhoff also."

I, for one, was quite reassured (as I usually am) by these comforting statements from our handlers.  Sounds like there's no cause for alarm!  Just "business as usual" on Wall Street.  Although, I must admit it is a little weird to see nothing but Baywatch on CNBC now...  But then, we've accepted so much already, with nary a peep of dissension --  so I'm sure we'll get used to this too.

Speaking of the Nasdaq, let's take a look at the Nasdaq 100 (NDX).  Last week I discussed the ambiguity this market presents, as a result of the apparent 3-wave rally into the last high.  It's now make-or-break time for the bulls.  NDX appears to have completed a five wave decline, so if bulls are going to recover to new highs, then now's the time.  Conversely, a breakdown here should spark a strong third wave decline.  Either way, the complete five wave decline suggests a retracement rally.

Below is the updated version of the chart I published last week, which has kept me from committing whole-hog to the bear case so far.

The Philadelphia Bank Index (BKX) is in a similar position to NDX, and hasn't yet confirmed whether this is the start of a deeper correction.

Inflection Point

Today, we're going to take a quick look at some long term charts.  The first is the Dow Jones Industrial Average Ordinary Mediocre (INDU-OM).  If INDU doesn't find support soon, it will leave a very bearish candle on the monthly chart.

Next is the Filthy-delphia Bank Index (BKX), which also needs to find support here, in order to stave off disaster.  Note the alternate count in black is still viable, since the wave (1) high remains unbroken.

I'm seeing mixed signals in the near-term charts.  The decline appears to have formed a clean abc or 123 now, which means the market may have started a larger retracement rally yesterday, and bulls still have potential for a stick save to new highs.  Trade below yesterday's low would begin to hint at a five wave decline, while trade above yesterday's high would suggest a larger retracement rally underway.

In conclusion, the market has reached an potential inflection point, and could put together a larger rally from here.  Trade safe.

Apple Reaches July's Target Zone; Dow Hints at Intermediate Trend Change

There's a surprising amount of complacency in the market at the moment.  Recent sentiment polls indicate that most people feel this is just a run of the mill correction and aren't the least bit worried about it turning into anything serious.  That's not a terribly good sign for bulls, since it means the market will, at the very least, probably need to shake them up pretty badly.  The "easy" move in trading is almost always the wrong one -- and if it's still easy to buy the dip, it's probably not the right move.  It will be the right move when it feels like it's the dumbest thing in the world.

The anticipated intermediate trend change may have begun a hair sooner than I'd have liked to see in a perfect world, but it's simply not possible to hit every target, and the final target fell about 10 points short.  Nevertheless, I hope I gave adequate warning on August 13, when I wrote:

I believe the downside potential exceeds the upside potential relative to current price levels.  While the near-term still allows for another wave up to new highs, I would be quite surprised if bears don't win this battle at intermediate degree.  Hopefully that helps clarify my current stance, and it represents a material shift of my long-term stance in January.  I'm no longer long-term bullish, but am now in "sell the rallies" mode until proven otherwise.

The decline so far is only three waves, so an intermediate trend change hasn't been confirmed.  Once we have a full five wave decline, that should be confirmation, and tell us to expect a rally, then another decline of equal or greater length.  Despite the non-confirmation, the early signs point to a trend change.  The Dow Jones Industrial Average (INDU) has reached the breakdown target, and I went on record August 13 saying that if the first support zone failed, my expectation was that the second one would be reached, and would fail as well.  The first part has come to pass, and the moment of truth is here for the second half of that prognostication.

Of note is the fact that INDU has overlapped the wave (1) high, which rules out a low-degree fourth wave for INDU.  The projected path is unchanged from 8/13.

 
Bulls need to keep the decline as a three-wave form to continue their intermediate hopes -- so unless they reverse the market immediately, it appears S&P 500 (SPX) will fail to reach the final target.

Russell 2000 (RUT) did reach its target from February, and we can see a three-wave decline here as well:

Understanding the Market's Conflicting Signals

In the last couple updates, I've waffled a bit on whether there will be another wave up or not -- my apologies if I've confused anyone.  The simple fact is, there are conflicting signals across markets right now, and frankly I'm feeling a bit flummoxed trying to parse the information at the moment -- so I'm going to share some of the things I'm seeing and let readers draw their own conclusions.

One of the most telltale patterns in Elliott Wave is called an expanded flat.  Expanded flats consist of two 3-wave structures, followed by a five wave structure.  The first 3-wave move runs counter to the previous trend, the second one runs with it, and the third wave runs against it and is virtually always the longest and fastest.  Here's the key with expanded flats: that second three wave move (in the direction of the trend) actually exceeds the previous high or low.  In other words, in a bull market, that means the correction makes a new high.  The diagram below depicts an expanded flat (on the right side; to the left is a standard zigzag correction).

 
Expanded flats offer clues toward projecting the market's next move.  Back in November of 2012, the apparent three-wave rally into the prior high is the main thing that kept me looking in the right direction, and anticipating that decline would be bought and ultimately make new swing highs.  We all know how that turned out.

One index is currently flaunting a quite brazen three-wave rally into the most recent high, and that's the index whose abbreviation actually sounds like "index":  the NasDuck 100 (NDX).  The pattern in NDX screams expanded flat -- and with this pattern in place, it's really hard to imagine the final high is in.  Assuming Apple (AAPL) continues up into my next target zone of 510-530, perhaps that will be the catalyst which drags NDX to another high.  To the downside, wave (4) is not allowed into the price territory of wave (1), therefore the wave (1) peak is the invalidation level for blue wave (4).
 

Then there's the NYSE Composite (NYA), which is the market that's recently thrown me onto the waffle train.  NYA has thus far failed to exceed its May high, which is the minimum expectation of a fifth wave.  Failed fifth waves (where price does not exceed the previous high) are rare; statistically speaking, the odds of a failed fifth are perhaps 1 in 80 -- so, purely from an odds standpoint, we have to put this index in the "one more high" corner as well.

Almost Everything Is Lined Up for the Bears

For the past couple weeks, I've done my best to avoid trying to make a firm prognostication of the near-term as long as the market remained range-bound.  As of this morning, it appears the market is ready to break down from the apparent head and shoulders top.  I've made my intermediate bearish stance pretty clear, but we're presented with a lingering conundrum regarding the short term.  The NYSE Composite (NYA), which is a fantastic representation of the market as a whole, has thus far failed to best its May high.  

The purpose of a fifth wave rally is to break the high of the previous wave; and the vast majority of the time, that's exactly what it does.  In rare instances, the market will experience something called a "fifth wave failure" -- which, as the name implies, is when the fifth wave fails to exceed the high of the prior wave.  Fifth wave failures are impossible to predict in advance -- in fact, their very nature is to be the exception to the rule.

Outside of NYA's failure to make a new high, the patterns in most other markets look bearish.  After several weeks of top-building, it's difficult to image we'll see a short-lived breakdown.  Everything seems to be lined up for a sustained intermediate breakdown -- except for the lingering doubt created by NYA's failure to make a new high.  I obviously can't be certain what will happen here, but because of NYA, I'm going to at least keep an open mind to the possibility that we'll see a relatively short-lived breakdown, then a new high to complete the expectations of wave v -- and then the more serious intermediate bear move.  If it weren't for NYA, I'd say fuggedaboutit, bears will run straight to the end zone. 

Despite NYA, the preponderance of evidence seems to favor the bears for the time being, so that's the direction I"m going to lean.  It's entirely possible that NYA did indeed form a failed fifth, which would suggest a very strong bearish market to come.  I'll track both options heading forward.

The S&P 500 (SPX) notes the apparent near-term count, and some preliminary targets.

In the big picture view, I continue to feel that no matter how the near-term resolves, the bears are about to take control of the intermediate picture.

SPX and Apple Update: Icahn Joins Us on the Apple, Inc. Long Play

Lately, charting the S&P 500 (SPX) has been about as enthralling as reading a washing machine instruction manual.  It's continued to trade inside a seemingly endless, whippy range, leaving us free to imagine whatever patterns we want.  Thankfully, all is not lost for those of us who write about these things: Apple (AAPL) has been a big hit since I recommended it as a long play on July 8, and continues to please those of us who are invested in the high-tech fruit.  Apple made a convincing breakout over resistance yesterday on impressive volume.

Apple's now bumping against resistance from the (assumed) A-wave low.  This is an important resistance zone, since overlap of that price zone would suggest a three-wave decline -- and that would mean the decline was corrective, which would then suggest Apple is ultimately headed back into the 700's.

Some folks believe that technical analysis is a bunch of silly mumbo jumbo -- I would point at my Apple charts of the past few months as a strong hint to those folks that they're missing out on a powerful trading tool.  I first called attention to Apple back in May, and it rallied briefly thereafter, at which point I told readers I would not want to remain long if it traded below 442.  It did so, and then proceeded to drop 50 points.  From there, I projected the the dip on July 8, which I recommended as a buy, with a first target of 460-480 -- and the rest is history.  All of this has been done simply by reading the charts.

Obviously, I didn't have insider information allowing me to project that Apple would jump 5% on its earning announcement, and another 5% on Icahn's buy recommendation.  There was no way I could know these things -- but someone was buying (and we now know at least one of those big players by name), and that buying left patterns in the charts which pointed to higher prices.  As I've asserted for many years:  the charts lead the news.  If you're lacking technical analysis in your trading arsenal, you're missing a fantastic tool.

As noted, bulls aren't entirely out of the woods just yet, but given yesterday's solid breakout, the picture continues to look promising.

In reviewing my chartbook tonight, I realized a minor oversight on the NYSE Composite (NYA).  NYA hasn't broken the May high yet.  I've been leaning toward the idea that there would be another wave up to wrap up the pattern for the near-term, and this realization puts me more strongly in that camp.

Intermediate term, I continue to believe this is will mark the final wave before a solid correction.  The Dow Jones Transportation Average (TRAN) looks to be in the process of forming a topping pattern.

Market to Bulls: "Pay Me Now, or Pay Me Later"

The market has continued to trade within the noise zone, and the question remains whether all of wave v is in or not.  For a bit of perspective and clarity, I'll break down my view on what each time frame holds for bulls and bears heading forward:

1)  Near-term, I'm not certain if the rally has put in the final thrust or not.

2)  Intermediate-term, I believe the market will see a significant correction or worse.  The question is whether that correction begins directly, or begins from slightly higher prices.  My February target of the mid-1700's hasn't been negated yet.  Whether that target is reached or not, I presently expect the market will ultimately end up trading below current prices over the intermediate term.

3)  Long-term, we may or may not have another  fourth wave decline and fifth wave rally to unravel, and we'll have to unravel that question at some point in the future.  The potential exists for a major long-term top in this zone, and I'm presently a bit more inclined to favor that view. 

In any case, I believe the downside potential exceeds the upside potential relative to current price levels.  While the near-term still allows for another wave up to new highs, I would be quite surprised if bears don't win this battle at intermediate degree.  Hopefully that helps clarify my current stance, and it represents a material shift of my long-term stance in January.  I'm no longer long-term bullish, but am now in "sell the rallies" mode until proven otherwise.

I've chosen the NYSE Composite (NYA) to help illustrate why I feel this way.  As I see it, the best-case scenario for bulls right now is a running triangle, which leads to a final rally wave.  Worst case for bulls is the top is in already.  Bears win both those battles at intermediate degree, but may want to await a breakdown in order to maximize probability.  In other words, I'd be inclined to sell either at higher prices or at lower prices.  Taking action directly in the middle of the noise range amounts to a coin flip.

 The S&P 500 (SPX) near-term chart illustrates essentially the same conundrum, from a near-term perspective.  No clear break has left myriad near-term potentials.

From higher elevation, the big picture seems more clear.  The question remains whether red wave v is complete or not, but I would presently expect the downside targets should be realized either way.  The first target of the most bullish count at intermediate degree is the low 1600's (shown by gray wave (4)).  The most bearish count has a final target near the 2009 lows.

No Title for You! One Year!

I spent some time studying charts this weekend, but ultimately there's really very little to add from last update, since the market remained within the noise zone on Friday.  So I've created a chart which will hopefully help readers better understand the big picture outlook.  The chart annotations pretty well explain my thinking at this point.  I've used the INDU for illustration, but SPX would be expected to follow a similar path.

On SPX, there's been no change, and we're still watching to see if the pending bearish sell trigger is tripped.  Despite the fact that ES is about 6 points in the red right now, I wouldn't be surprised to see SPX rally back toward 1700 at the open.  If it instead heads down directly from here, watch for a solid sell off. 

In conclusion, we're still in the noise zone, so there's been no change from last update, and I still feel a breakdown here would likely suggest the beginning of a much larger correction.  Trade safe.

Sentiment Has Reached Extreme Levels, A Bad Signal for Bulls

The market has been range-bound for the past few weeks, but should be close to declaring its intentions.  We've reached an important inflection point, and as most readers know, I expect that we're very close to beginning a significant decline.  While I'm not closed to more bullish options, I'm inclined to stick with February's projection for an important top forming in the 1700+ price zone, and the market has shown me nothing to make me any more bullish that that -- quite the contrary.  So the main question in my mind is how close we'll come to February's target of 1750 +/- before the anticipated decline begins.  As we'll discuss shortly, the possibility exists that decline may in fact have already begun.

After we run through a few price charts, I'd like to share an incredibly interesting Rydex fund chart which should give bulls cause for concern.

Starting off with a chart that shows why it's a bit too early to call the next move with conviction, we can see on the NYSE Composite (NYA) that the market has been noisy and range-bound for some time.  This could be a reversal pattern, or merely a consolidation before the rally continues toward the long-term price target from seven months ago.  We simply won't know until the market makes a sustained break.
 

 
The long-term chart shows that we're presently in the CE ("close enough") zone, but with the market range-bound in the recent past, it's just a bit too early to call whether we've seen all of red wave v yet.

On the S&P 500 (SPX) hourly chart, we're presented with a fairly clean sell trigger at 1684, and this roughly matches the technical theme of the NYA chart shown previously.  We can also see that SPX has formed enough waves that we could conceivably view this as a complete five-wave rally.

So far, the breakout over the May high hasn't been significant enough to signal any kind of all-clear for bulls.  Meanwhile, the decline to 1684 and subsequent bounce could simply be viewed as a back-test of the May high.  In other words, there's not much info being conveyed by the charts here, and the market needs to declare its intentions with a breakdown or breakout before we can feel more confident in the next sustainable directional move.

Short Update

Unfortunately, my personal life has necessitated a short update today, but there's probably not much required anyway.  We've reached a potential inflection point.  SPX has formed a five-wave decline, which suggests either a running flat (a variation on Tuesday's alternate count), or the start of a new leg down.  This provides us with a fairly reasonable bearish sell trigger at 1684, with the caveat that any decline below 1684 needs to show increasing momentum, since fourth waves are one place where triggers like that can fail spectacularly.  In any case, the pattern has the potential to turn into a head and shoulders, and that has to be respected as a possible topping pattern.

Without another break lower, though, and it's simply a back-test of the May high. 

In conclusion, the possibility does exist for a turn underway, but this could simply be a back-test of the May high -- so the next break should help point the way for the bigger picture.  Trade safe.

Dow Overbought and Approaching Long-term Resistance

Today we're going to look at the long-term in a bit more depth.  As most readers know by now, I believe we're in the fifth wave of this structure, meaning this is the final rally wave before a significant top.  The wave is still pointed upwards for the time being -- so we don't want to get too far ahead of the market -- but at the same time, I think risk to long positions is increasing.

The rally still seems like it's being driven by bots and algos, and according to Nanex Research, yesterday the SPDR S&P ETF Trust (SPY) recorded the lowest non-holiday volume since February 16, 2007.  One can read a lot of things into that fact, but I found it of interest.

The long-term monthly chart of the Dow Jones Industrial Average (INDU) also has some interesting features.  The two most noteworthy are the approach of long-term resistance (at the upper blue line), and the monthly MACD, which is now at the second highest reading in history.  The record reading occurred just prior to the top at the beginning of this century (sheesh, we're getting old!).
   

The long-term S&P 500 (SPX) chart is almost entirely unchanged since February, and appears to be putting the finishing touches on the structure.

The Russell 2000 (RUT -- aka: the least appealing acronym in the industry.  Who wants to own a bunch of "RUT"?) also appears to be wrapping up its five-wave structure.

Apple, Inc. Reaches Price Targets; while SPX Bears Ask: "Are We There Yet?"

Since my last update, the S&P 500 (SPX) reached the next target zone of 1704-1708, the Philadelphia Bank Index (BKX) reached its target of 67-71 and Apple reached its July 8 target and July 10 target of 462-468.  Today, we'll look at what may be next for all three.

Let's discuss SPX first:  While further upside is still anticipated, if my preferred wave count is correct then this rally is the fifth wave of a fifth wave -- meaning a significant correction (or worse) should follow.  Market internals have been weakening as SPX makes new all-time-highs, which does fit the expectations of a fifth wave.  The X-factor as always remains the Fed's printing press, but even the Mighty Beard of Ben Bernanke can't remain forever immune to the natural cycles of the market, and I presently see no compelling reasons to doubt the preferred wave count.

All of my recent near-term upside targets have been reached; but in the bigger picture, the next target zone is 1720-1735 SPX.  There's still a shot at my February 7 target of 1750 +/-, but we'll have to take it day-by-day heading forward, since if this is indeed the fifth and final wave of the rally, then the odds for downside risk are increasing even as price heads upwards.  Personally, I've never been a big fan of fifth waves.  They're designed to catch everyone off-guard -- obviously that's how they need to work, since if everyone knew the market was going to reverse its established trend in the relatively near future, then no one would take the other side of the trade.  As a result, fifth waves tend to fall either a bit short of the final target (while everyone is still looking up) -- or they run right through the target and get everyone thinking all's well and the market will trend forever.  We'll see how close I can get to pinning this one down, but "expect the unexpected," as the saying goes.

SPX has followed the recent projections well, and presently appears pointed toward the next target zone.

There's an alternate near-term possibility, which would add a nice twist to the path SPX takes to reach the target.  The alternate count is for a pattern called an expanded flat, which would kick out the prior swing low before rallying back up to the target zone.  Expanded flats are great for creating confusion and maximum pain among market participants, since the break of the prior support zone get everyone looking the wrong way.  Presently, I'm discounting this alternate count at 35% odds, but the recent rally wave gives off an aura of "b-wave slop," which is why I'm discussing the potential.  I've noted a few levels to watch on the chart below.

The Philadelphia Bank Index (BKX) has now reached both upside target zones.  I haven't drawn a near-term chart for BKX, but it seems to suggest the same potentials as SPX.

Market Still Appears Pointed Higher after FOMC Announcement

Yesterday's FOMC statement was a non-event.  The Fed basically said that everything is great, except where it isn't, but there's no reason to begin tapering QE just yet.  The Fed also let us know that despite the rising costs of oil, housing, food, clothing, beard trimmers, and of course equities, that in fact inflation is incredibly low by anyone's standards -- especially the Fed's -- and in reality there is no such thing as inflation, it's all just a trick of the light; and even if inflation did exist, it certainly couldn't survive in this day and age, what with cell phones and iPads and such, so go back to sleep and we'll take care of everything. 

I'm sure we can trust these guys to make this all work out.  It's not like they're trying to control a massive and incredibly complicated system like a national economy or something.  And I mean, this is the same group of folks who assured us there was no housing bubble right before the housing bubble popped, so clearly they're better informed than we are. 

Meanwhile, the market still appears that it wants to continue rallying for at least a bit longer.  In my last update, I expected further upside for both the preferred and alternate count, and the S&P 500 (SPX) rallied into the alternate count target zone of 1695-1698.  Despite the strong reversal from that zone, I'm continuing to favor my view that the bulls will push up into the preferred count's next target of 1704-1708.  If the bulls can do that without whipsaw, then odds are good we're headed into the higher degree target zone of 1720-1735 (see hourly chart which follows).

   
On the hourly, I continue to feel the market needs another wave up to complete this five-wave structure.  This chart has tracked well for the past few weeks.

I haven't updated the long bond since the end of June, but after my last update, it subsequently found support within my very narrow target range of 132-132.10.  The rally out of that zone appears impulsive, and a breakout over the dashed black line has good odds to take wave (4) up toward the 137 zone -- with a shot at 140.  So the long bond could stabilize for a while here, but ultimately in the big picture, lower prices are expected.

 
In conclusion, equities still appear to be pointed toward the next upside target zone, and I'll adjust and refine those targets as this wave unfolds in real-time.  I continue to believe the market is entering the fifth wave of a fifth wave, which means a significant correction awaits upon completion.  Trade safe.

Reprinted by permission; Copyright 2013 Minyanville Media, Inc.

Not Quite Yet, but Soon: Get Ready for a Major Correction

Let's face it, bull markets are boring.  At least, I think they are.  I miss having a market like we had in 2008 -- but then, I love volatility.  I think there's nothing more exciting than running both sides of the trade and picking up 50 ES points on a round-trip in one day.  You just can't do that type of thing in a bull market.

For the past few weeks, I've been trying to balance how to discuss this market at different time frames, so as not to be too premature in discussing the bearish potential and scare people off from playing the long side.  The bottom line is that the bearish potential is something I'm anticipating not too far down the road -- but as I discussed yesterday, I'm still not seeing any real signals in the price action about which to become bearish.  Nevertheless, I would be remiss not to highlight the fact that I believe we're in the fifth and final wave of the rally -- so today, we'll look at that in a bit more depth.  

While I don't see anything to be immediately bearish about, the "good" news is:  I think the bears' turn to shine is coming soon.  Back in the beginning of February, I published my preferred long-term wave count, with a target of 1750 (+/-) SPX -- and we're finally almost there.  I'm still inclined to believe there's another wave up to come here, but I'm also inclined to believe that we're going to see a big correction (or much worse) follow that wave.

One of the fascinating things about Elliott Wave Theory is the psychological component.  Each wave has its own character, and sometimes we can use sentiment to help locate where we are in a wave structure.  For example, second waves (in bull markets) tend to be the moment at which everyone is most fearful.  Third waves are the "point of recognition," where the majority finally get on board with the right side of the trade.  Fifth waves tend to be times of either "irrational exuberance" or utter complacency -- or both.  I believe we're in a fifth wave now.

Accordingly, I believe we should prepare for some sort of major news event approaching on the horizon -- quite possibly as soon as August -- which will start to shift sentiment away from the Invincible Fed Money Machine to "Hmm, maybe things aren't as solid as we think."  Ultimately, much further down the road, sentiment will come full circle to "Arrgh, get me out of this market at any price!"

I think we're getting close to beginning that bear cycle.

The long-term chart shows my preferred wave count, and while I can't rule out the more bullish count, I'm still inclined to favor the black (B) wave rally, which will reverse (ideally sometime in August), and ultimately head back to retest the 2009 lows.  Of course, that sounds impossible right now... about as impossible as SPX 1700 did, back in 2009.

On the hourly chart, we can see that the structure still appears to need another wave up, to yet another new all-time-high.

The five-minute chart is my best-guess on the near-term wave structure. The recent action is a bit messy, which is usually suggestive of a fourth wave correction.

In conclusion, I don't think it's time to get uber-bearish just yet, as I believe the structure is still pointing to higher prices.  But I think we're getting close, and traders with an eye toward the intermediate and long term may want to consider beginning to position for a fundamental change in the market's character.  Trade safe.

Reprinted by permission, Copyright 2013 Minyanville Media Inc.

Any Reasons to Get Bearish Yet?

In this update, we'll revisit Apple (AAPL) and see how the wave count is progressing, and also take a look at the broader market.  Before I get too far, though, I should mention that since I reside in Maui, I may end up "off the grid" in the near future.  We're awaiting the arrival of Tropical Storm Flossie, which is due to hit Monday morning and projected to pass directly between Maui and the Big Island of Hawai'i (this is a relatively narrow space, which means it's going to hit us pretty hard).  In preparation, I spent yesterday braving the long lines at Costco in order to stock up on necessities like Doritos and Kit Kats, in case the storm wreaks havoc on Maui's infrastructure and leaves us without power and chocolate.  Honestly, though, it's tough to take a storm named "Flossie" too seriously.  To me, "Flossie" sounds like the name of a cheerful licensed cartoon character who promotes the virtues of good dental hygiene ("Remember kids, Flossie says to clean between your teeth after every meal!  Especially after eating Kit Kats and Doritos!").   

Anyway, last update noted that the S&P 500 (SPX) had reached the 1695-1705 target and was probably due a fourth wave correction.  It appears that correction has unfolded, and is likely complete, suggesting the market is beginning wave (5) up to the 1700's.  The decline appears corrective so far.

The Dow Jones Industrial Average (INDU) put in a bullish reversal on Friday, and this type of candlestick suggests a lot of buyers were/are waiting just under current price levels -- which suggests solid price support for the near-term.

The Dow Jones Transportation Average (TRAN) presents an interesting picture.  It's formed enough squiggles for Minor Wave v to count as complete, but wave v would appear disproportionately small if it is indeed finished.  One of the guideline of Elliott Wave Theory is two waves in an impulse tend toward equality -- usually wave i and v.  If we've only seen wave (1) of v, then there's quite a bit more rally still to come.

Too Many Markets, Too Little Time

I apologize for the brevity of the updates lately, I've had a great deal going on in my personal life, and haven't had much in the way of free time lately.  Hopefully things should return to "normal" (whatever that is) in the reasonably near future.  I've updated several charts, but will have to keep the body of the article short. 

First up is the Nasduck Composite (DUCK), which is probably the clearest example I could find of a market that suggests new lows on the way.

Next is the NYSE Composite (NYA), which has a similar bearish rising wedge:

The Philadelphia Bank Index (BKX) chart notes a bearish sell trigger:

In the last update I noted that we should begin looking for a correction, since three markets had reached target zones.  It appears likely that a deeper correction is on the way, and I've noted the first two downside targets on the S&P 500 (SPX).  This is of course predicated on bears reclaiming 1680.

In conclusion, the correction suggested in the last update appears to be unfolding now.  Note that wave (4) could run quite deep without creating any technical issues, and give the shallow nature of wave (2), a deeper wave (4) correction would not be out of the ordinary.  Also continue to keep in mind the alternate possibility that ALL OF wave v completed at 1698.  Trade safe.

SPX, RUT, BKX: Russell 2000 Reaches December's Target

The rally has continued largely unabated since last update, and several markets have reached their target zones.  As yet there's no concrete sign of a turn, but two markets have reached near-term targets, and one has reached a long-term target, and this suggests a cautious stance is warranted. 

The S&P 500 (SPX) reached the 1695-1705 target zone for blue wave (3), but it's unclear if it has farther to run or not.  So far, the melt-up channel remains intact.

The Philadelphia Bank Index (BKX) cleared target zone one and is within pennies of the second target.  It's now bumping its head against theoretical channel resistance, which is always a zone where I consider action in the form of taking profits and/or anticipating/positioning for a reversal.    This is a zone that provides information and defines clear lines of demarcation.

Of some note, the Russell 2000 (RUT) has reached the long-standing target of 1050, from way back in December.  Again, it's unclear if there's farther to run -- but this market is also bumping into theoretical channel resistance, in conjunction with reaching my long-term target. 

In conclusion, there's yet been no real signs of a reversal, but with several markets reaching targets and resistance levels, this is clearly an area where we should begin watching for one.  Presently, it appears the market still has a fourth wave decline to unravel, followed by a fifth wave to new highs.  The alternate count allows the possibility that the market is completing fifth waves at multiple degrees, but we'll need to see the form of any forthcoming decline before adding credence to that possibility.  Trade safe.

Short Update

Unfortunately, I only have the time and energy for a short update today.  Yesterday, SPX made a new All-Time-High, as the charts suggested it would.  So far it's come within a couple points of the next blue box target zone from 7/15, and I have some caution levels to help determine whether it will be reached or not. 

The first near-term level for bears to reclaim is the previous all-time-high at 1687.  The next key level is 1684 (which was also the first installment in the now-famous series of George Orwell novels, featuring Ye Olde Big Brother).  If those levels fail to act as support, then we may have begun the blue wave (4) correction a couple points early.

Beyond that, there isn't much to add from the previous update.  Trade safe.

SPX and Apple Have Both Reached Minor Inflection Points

Not surprisingly, the market encountered some resistance at the all-time-high, making yesterday the first down day the market has seen since the Truman Administration.  At least, it seemed that way... but it's probably been longer. 

There is some room in the charts for near-term bearish movement, but right now the decline is only an abc sequence, so bears will need another new low to begin thinking in terms of a more meaningful correction.  The near-term chart below outlines some key short-term levels and contingent targets.  If we see a solid new low (shown as gray (5)), then we'll begin anticipating the next bounce will be followed by another leg lower for the near-term (gray ABC).

Stepping back a time frame, I'm inclined to believe that we're still in blue wave (3) until the market says otherwise.  Note the bearish alternate count remains viable as the all-time high is still intact.

I'd also like to share a long-term count I've been tracking for a while in the Nasdaq Composite (COMPQ).  The unique perspective that the Nasdaq affords is that we know, without a doubt, to expect a five-wave rally.  In SPX and many other indices, we really don't know which long-term structure to anticipate -- either an ABC or an impulse wave.  But because Nasdaq is still recovering from the tech crash, and is clearly in a c-wave, we know to expect an impulsive upwards move.

Note the Nasdaq recently reached the 61.8% retrace of the tech crash, which is always a good spot for a correction to begin.  Ultimately, it appears more likely that Nasdaq has higher prices in store for the long-term, and the 4000-4200 zone presents targets at two wave degrees, so assuming we can get through current resistance, that may be the next spot to watch.  Of note, my preferred count for Nasdaq has us in wave v of (5) of v -- which means it's anticipated to be the last leg up at multiple wave degrees.  This also means that it has already completed the minimum expectations of a fifth wave (having reached a new high), so there's no room for complacency heading forward.

I'd also like to briefly update Apple (AAPL). Apple has performed well and tacked on about 20 points since I suggested it as a long play on July 8.  Since we timed this entry properly, we can either take profits or move stops up to roughly break even, thereby limiting or eliminating risk.  In any case, AAPL has reached an inflection point, so I'd like to talk about the other side of the trade in more detail. 

I'm still favoring the bulls for Apple, and the preferred count is a bullish nest of first and second waves, which would lead to a strong rally in a nested third wave.  The only thing bothering me for AAPL is the rising wedge shape it's taken, but it's not uncommon to see this structure before a strong rally.  However, it needs to launch out of that wedge with authority to validate the bull case; and the longer it hangs around current price levels, the more cautious I become.  I view the bearish wave count as roughly a 40% underdog, but Apple has now completed a potential ABC rally, so it needs to be watched closely for the moment. 

In conclusion, the trends remain pointed up for the time being, but the market has reached an inflection point, and a new low would shift the near-term trend.  And that always leaves open the possibility of a larger trend shift underway, though it currently appears more likely that the market will head on to new highs after this correction completes.  Trade safe.

 

Reprinted by permission, copyright 2013 Minyanville Media, Inc.

Are We Witnessing a Blow-Off Top?

Today we'll revisit the long-term wave counts in two markets, both of which suggest this may be the final wave of the rally.  A blow-off top in progress.  Last update I discussed the bull case.  Today is not a reversal of that argument by any means, it's simply a discussion that encompasses a larger time frame.  Near-term, I feel bulls have better odds, and the next target zone for the S&P 500 (SPX) exceeds the all-time-high.  But in the bigger picture, the party may be coming to a close in the not-too-distant future.

First up is the S&P 500 (SPX).  When I drew the initial projections for this chart back in early February, I obviously couldn't know it would follow that projection almost turn-for-turn for the next five straight months.  If only I could have held my nose and bought the dips exactly as anticipated.  This is such a hard environment from which to unplug one's brain, though, with the ongoing Central Bank machinations.  But from a purely technical standpoint, the first read is usually the right one.

In any case, it appears reasonably likely that February's projection of 1750 +/- will come very close to being reached.  It also appears this is a fifth wave rally -- which means its job is to get us to believe it will never end.  Fifth waves are where smart money passes the bag to dumb money, just before a move finishes.  If one isn't inclined to front-run, there should be some warning in the form of an impulsive wave down, though fifth waves sometimes end abruptly on a strong reversal that leaves heads spinning, so please approach this market with caution. 

On the chart below (4)? and iii? are gray because we can't know yet whether to expect them or not.  Black (B) marks a potentially complete wave: a long-term top which then leads to black (C) way down there at the bottom of the chart.

Near-term, the SPX looks to be in the process of completing wave (3) of v.  Until the All-Time-High is claimed, bears can hold out hope for a more bearish resolution, but I'm inclined to view the bears as near-term underdogs at this exact moment.  If my long-term count is correct, though, their time is coming. 

The Philadelphia Bank Index (BKX) has reached the target zone from 7/8, but also appears likely for continued upside.  I've become quite convinced we're witnessing an extended fifth wave in this index, and the concept of an extended fifth wave fits the psychology of this time perfectly.  It also fits the Fed's influence of printing so much money that the market has no choice but to keep heading up, when it "wanted" to stop rallying some time ago.  The fifth wave extension in this case is almost an unnatural move; a wave extension forced into existence by excess liquidity if you will.

In conclusion, if the long-term wave counts are correct, the market will continue rallying into the 1700's.  And while we don't want to get too far ahead of the market, it appears reasonably likely this is the final rally before the most significant correction we've seen in some time.  Trade safe.