SPX Update: Crash Wave Ready; Confirmation Still Pending

There's been no material change in the counts since yesterday's update, however, I have narrowed down some possibilities for the current retracement rally.

(If you're new to the discussion, or to Elliott Wave Theory, it would be quite helpful to familiarize yourself with The Big Picture long-term market projections, which have played out quite well so far.)

The retracement rally off the 1226 print low has fulfilled the minimum requirements for a second wave.  While there are several options for the structure to take from here, two possibilities jump out at me as the most likely:

1) We have seen most, or all, of the Wave 2 rally.

2) Thursday was part of an a-wave leading diagonal (see chart, below).

I am slightly favoring the leading diagonal interpretation, simply because it counts a little better given what the market has revealed so far.  However the rally could also be counted as a series of zigzags, which makes for an unpredictable short-term outcome.  It reminds me a lot of the beginning of the rally off the November 1 lows; it's simply an ugly structure.  So the third option is that it will evolve into a similar type of rally as the previous one -- although, this being a smaller degree wave, it won't retrace as many points.

The critical knockout level for my preferred count remains the October 27 high of 1292. 

I continue to feel that the important support levels are 1215 and 1190 SPX.  If the bulls can't hold those levels, we will almost certainly see a rapid drop to the next meaningful support zone near the SPX 1000-1050 area.  This first leg down would then set up a much larger crash wave, which could ultimately take the SPX as low as the 400's.  The chart below reveals the intermediate picture, if these critical support levels don't hold:

The bullish alternate counts are still floating around out there at 20% odds.  However, given all the bullish sentiment; the fundamental mess the world is in; the double-failure at the 200 day moving average and head and shoulders neckline; and the cross-market comparisons I've been publishing for a couple weeks (the Dollar, copper, Apple, etc. -- Apple and the Dollar, incidentally, are so far performing exactly as projected.), I continue to have a difficult time viewing this as anything other than an important top.

As a result of all these studies, I believe it's highly likely this crash wave will occur, and am favoring it at 80% odds.  But it's not like I've never been wrong before (just ask my wife, she'll gladly verify this).

In any case, it's a bit of watch and wait right now.  The market is perched on the edge of a cliff, and what happens next could determine this market's future for a long time to come.  Trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

SPX Update: Looking for Confirmation of the Crash Wave

On Tuesday, my readers and I were pretty much all alone, looking for a top.  How things can change in a day!  All the sudden, the masses seem to be waking up from the drunken euphoria of Wave (2) and realizing the world doesn't look as good without the beer goggles of Central Bank intervention.

I want to talk about the psychology of different waves for a moment, so readers understand why I will be telling them: at this point, it's okay for the masses to get on board with our top call.  Before we get to the present, let's take a quick look at the past.  Back on October 4, when I predicted the S&P 500 (SPX) would rally from 1074 to 1265 (close!), I wrote about the psychology we should expect going forward off the low:

Keep in mind that the psychology of investors will probably become quite a bit more positive in the near future, so that by the time we reach the Minor (2) peak, the majority will be bullish again. It always helps to anticipate the mood, because after Minor (2) completes, we will be presented with what (I believe) may prove to be one of the greatest shorting opportunities of our lifetimes (but due to the psychology, by the time Minor (2) peaks, no one will think shorting is a good idea anymore -- just as most don't think going long is a good idea right now).

I think it's safe to say that the psychology detailed above pretty well matches what most investors were thinking on Tuesday.  Tops are made a little differently than bottoms.  Due to short covering panics, bottoms tend to be fast and furious v-shaped affairs; tops take a little more time.  In my preferred view, Minor Wave (2) actually peaked on October 27 -- but this secondary, smaller Wave (ii) peak, which likely completed on Tuesday, helped stretch out the top and further fulfill the psychological requirements of Minor Wave (2).

AAII investor sentiment (right) was released on Wednesday, and again came in at elevated levels; bullish sentiment is almost 6% above the historical average.  Add that to the other sentiment indicators we've been looking at for several days, and you get some pretty frothy bullish sentiment, consistent with an important top. 

If my preferred count is correct, we are now in the very early portion of Minor Wave (3) down.  I liked being alone when calling the top of both second waves, but now for the third wave, I'll welcome company.  Third waves are the moment of recognition for the masses.  This is the time people will (again) start waking up to the world around them, and realizing what a mess it is.  Third waves are not waves in which to be contrarian; they are waves in which more and more people will pile on the bandwagon as the move accelerates. 

At some point, that bearish sentiment will become extreme (in fact, more extreme than is generally considered acceptable), and at the very bottom of Minute Wave 1 (the first leg of Minor (3)), people will believe the world is ending.  Then something will come along that is perceived as really good news: maybe QE3; or the announcement that the European Central Bank has been purchased by China and will be converted into an outlet store.  This good news will come concurrent with the Minute Wave 2 bounce, during which sentiment will recover slightly -- however, not nearly to current levels.

But I don't want to get too far ahead of the market here, so we'll examine these things again when the time is right.

Onto the charts.  While there are never any guarantees, the setup in the charts is as good as it gets for the beginning of a third wave down.  If the market takes out 1215 on a closing basis, many indicators will roll decisively.  If it takes out 1190 below it, these indicators should accelerate to the downside.  You can also see in this first chart that if the market breaks below 1190, there is no meaningful support until the low 1100's.

Additionally, the market is falling down from double retests of both the 200 day moving average, and the head and shoulders neckline.  Both tests have failed; it's hard to imagine that the market would feel the need to test these levels a third time, but stranger things have happened.  Add these facts, and the bullish sentiment, to all the other charts we've looked at recently, such as the dollar, copper, oil, and others, and it's hard to imagine that the setup could get much better.

But as yet, there is not any real, objective confirmation of the preferred count.  It is more a case of strong circumstantial evidence.  For this reason, I have presented an alternate count as the final chart, and despite the near-perfect setup currently, I would suggest remaining aware of that alternate potential.

There are, of course, still bullish alternate counts.  Collectively, I would give the bullish counts roughly 20% odds.  Because of the fact that this new wave structure has generated a number of different bullish potentials, I've decided it's no longer prudent to focus on only one single bullish knockout level.  Instead, I think the two levels to focus on are those just mentioned: 1215 and 1190 SPX.  Either of these levels breaking could spark a waterfall decline; these are really the last lines of defense for bulls until roughly 1115.  Below 1190, and a trip to the 1074 low is almost a given. 

If this is black subwave 1 of Minor (3) down (as shown above), it should eventually take out the 1074 low.  Assuming my preferred count is correct, I anticipate that the market will probably test the 1000-1050 zone before it finds any type of meaningful bottom. 

The next chart is the short-term SPX chart.  I have tentatively labeled the move as a nested 1-2 count, which means we've seen waves (i) and (ii), waves 1 and 2, and waves i and ii.  This count would imply a strong acceleration of the move once the market sees sustained trading below the recent low of 1226.

However, I must stress that this labeling is tentative.  I had to go study the ES futures to gain any insight into the possibilities, due to the fact that the wave structure in the cash market consists primarily of one giant red candle, which is indecipherable by itself.  The reservations I have with using ES for the count is that the futures, being a highly leveraged market, are susceptible to wave distortion.  So the count below is my best guess.  Basically, trade above the 1251.82 swing high would rule out the blue wave i and make it more likely that the whole move was one wave, depicted as the black "Alt: 1" and corresponding "Alt: 2" label and target box.

There are three KO levels marked on the chart; each one KO's the successive degrees of second waves. 

There is always the temptation, especially when things go almost exactly as predicted, to become lazy and complacent.  I therefore want to offer up a third possibility.  The challenge of Wednesday's move is that (again, using ES futures) it could be counted as a three-wave structure (we've seen this movie before -- several times over the past week); the problem here is that there's virtually no visible structure in the cash market, other than a clean five-wave move at the end, which could conceivably be a "c" wave.  So I would again mention that there is no confirmation yet, and present this alternate possibility (below). 

I would suggest being cautious of this potential only if the market were to trade above the 1251.86 swing high.  If trade stays below that level, then this count really isn't even a concern.  Even above that level, I would give this count low probability, unless we start to see internals strengthening considerably. 

 

So in conclusion, my preferred view is that this is indeed the start of wave (iii)-down of 1-down of Minor (3)-down.  It really can't look much more promising... well, it could, if we could decisively eliminate the potential of the 3-wave move shown above.  Barring the low-probability alternates, I would expect a bounce today for Wave 2, and a reversal either today or Monday.  Keep on your toes, and trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com 

SPX and Crude Oil Update: Rally Ready to Roll Over for Good?

I'm going to keep this update short and sweet.  Yesterday, the charts looked muddled, and to some extent, they still do -- I've noticed over the years that this almost always happens in the charts when the market is making an important top.  I was looking for a reversal yesterday, but I usually tend to be a day or so early for those, at least when I'm calling tops before they actually happen.  Did the same thing on October 27; I was a day early.  Maybe one day I'll figure out how to compensate for that.

Anyway, as a result of yesterday's action, there are really two main counts I'm focussed on now: the preferred count I've stuck to since late October, which says October 27 was a major top; and the alternate count which suggests the S&P 500 could make a slightly higher high for the move. 

In both cases, I am of the view that this is a bear market rally; and it should get ugly fast when it rolls over, as hoards of Johnny-come-lately bulls will be jamming the exit doors trying to get out.  If you're just joining the discussion, it's helpful to review my big picture outlook for the market.  Note that I haven't updated that article's long-term chart since October 3, largely because I haven't really needed to. 

Over the past few days, I have presented several indicators regarding sentiment, and discussed how these indicators were arguing that a top was being made.  In the market update for Monday, we examined Rydex bull funds (retail investors), which had reached record money flow levels.  In Tuesday's update, we looked at the ratio of money flowing into the Nasdaq vs. the NYSE, which had also reached record levels.

The point I really want to stress here is that this level of extreme bullish sentiment is simply not consistent with a bottom in the market.  Let me repeat that: bullish sentiment is not consistent with a baby bull market.  Remember March 2009?  People were convinced the market was going to zero.  Even at the October 4 low (remember way back then?  Like a month ago?), most were convinced the market was going to crash, not put together a monster rally.  Compare that with today, when there's more money going into risky stocks and bullish funds than ever before.  This type of sentiment is consistent with a top, not a bottom.  The market is all about fear and greed.  When the market reaches extremes of either emotion, a reversal is usually nearby.

This first chart shows my preferred count.  With the additional puzzle piece of Monday's price action, I am now about 70% convinced that this latest counter-trend rally is over.  There could be one more quick drop followed by a marginal new high (see blue "or (c)?" label), but I'm not favoring it.  However, the level on this chart which is critical for the bulls first defense is 1238-1240.  Until bears break those levels, new highs can't be ruled out.  But if those levels go, that will almost certainly leave the bulls in trouble.  And if this formation is an ending diagonal, those levels will probably get tested pretty quickly when it breaks.

One reason those levels are so critical is because breaking them will eliminate the option that this formation is a leading diagonal.  A leading diagonal would be consistent with the bullish alternate count (shown below), which considers the possibility that the market is in the beginning stages of wave c up to new highs (early targets are for 1305-1330).  If the bullish alternate count is unfolding, then this diagonal is wave 1 of red c on the chart below.

I should also note that breaking 1238-1240 still can't eliminate the bullish alternate count.  I don't know that it would help to launch into a huge and confusing explanation as to why, so you're just going to have to trust me on this: 1197 is the level that eliminates the bullish alternate. 

Even though the market has pushed up close to the knockout level for my preferred count (above), I continue to only give 30% odds to this bullish alternate (below).

One last chart to add; I'm sharing this primarily because a number of readers have requested it.  The chart is an update to my long-term count of crude oil.  The last chart I posted was on September 9, but if you check the old chart, crude has played out pretty closely since -- however, the old chart did require some slight adjustments to the labeling. 

From the looks of it, crude is currently in the process of backtesting the broken blue trendchannel, in the mid-$90 range.  If the preferred count shown on this chart is correct, crude is forming a nested series of first and second waves, and could collapse dramatically when it turns. 

I am currently favoring the preferred count by a 90% margin, based on my analysis of other markets, such as the dollar, copper, and equities.  However, the black alternate count cannot be ruled out yet, and, strangely, results in the exact opposite effect from the preferred count.  So, one way or another, crude is likely gearing up for a monster move.

To sum it all up, I think this rally is almost certainly over... but pay attention to the levels listed above for confirmation.  The next leg down could be brutal.  Preliminary targets for the first leg of the next move down are in the mid-1100's, but that could change as it unfolds.  Once we get some confirmation, I'll start refining the targets.  Ultimately, the larger-degree wave should take the SPX into the 800's or lower, although that will take some time, and there'll be rallies along the way.   Trade safe!

The original article, and many more, can be found at http://PretzelCharts.blogspot.com 

SPX Update and More: Market Playing Its Cards Close to the Vest

I believe it was Yogi Berra who said, "It's tough to make predictions, especially about the future."

The market has now reached a point where it clearly does not want to telegraph its next move.  There are times, when the larger trend is clearly defined, that the short-term wave structure isn't an issue.  This is not one of those times.  The larger trend for the year is still down.  The question remains: is the intermediate trend still up, or has it turned?  Early indications favored a turn, and I continue to believe that the top is either in, or very close.

Usually when the intermediate trend becomes hazy, an examination into the shorter time-frames can reveal some answers.  But after Monday's action, a short-term examination reveals total mayhem in the charts.  Since the November low, the market has range-raced repeatedly, and generally refused to provide any meaningful pattern. 

The market appears undecided.  It's as if the market is saying to itself, "Hmm.  Well, Europe seems okay for the moment; but it's still a disaster over there.  The economy doesn't seem terrible; but it doesn't seem too good either.  The Fed seems clueless; but at least they're not doing too much damage right now.  Decisions, decisions!"

At this point, there are so many potentials, it is very hard to narrow the future down to one likely path.  Despite that, I continue to favor the view that the next move is down.  I favor this due to sentiment, and also because that's what appeared most probable the last time the market looked semi-clear.  I must admit that my faith in this view has been shaken somewhat at this stage, so I've assembled a battery of charts for you to examine as well. 

The first chart I'd like to present is an old favorite indicator of mine, which I haven't had occasion to use in a while.  This indicator compares the volume on the Nasdaq as a ratio to volume on the New York Stock Exchange.  When investors get into "risk on" mode, more money pours into the Nasdaq.  As a result, the ratio is low near bottoms, where investors are behaving cautiously and putting less money into the "risky" Nasdaq; and high at tops, when investors are feeling invincible. 

As you'll see in the chart below, when this ratio hits 2.6 or higher, it's an excellent indicator that a top is very close.  My speculation as to why: near the top, it seems the last bit of capital is racing in to chase the long-shot, high risk stocks.  Over the past 3 years, this indicator has nailed tops (within a day or two) 9 out of 10 times.  Also worth noting, the current reading of 2.96 is an all-time historic high:

The above indicator presents a very good argument that the top of this recent retracement rally is pretty darn close.  Add that to yesterday, when we looked at Rydex funds, which are also showing sentiment is extremely frothy.

The next chart is a simple support/resistance chart of the Dow.  Sometimes when the counts become temporarily hazy, it's best to rely on classical technical analysis.  The chart is self-explanatory:

The next chart is the updated Apple chart.  Apple continues to look like it wants to make new lows.  The red line is the knockout for blue i as labeled on the chart.  I am convinced the blue "1" (below the red "ii") is an impulse wave, so I would expect if the alternate count unfolds, price should not exceed the red "ii" top.

Next up, the SPX chart, which has devolved into a confusing mess, along with most of the other indices.  I am favoring the view that we will see a little more upside on Tuesday to complete wave (z), of a rare formation called a "triple zigzag."  I would expect a reversal soon if this view is correct. 

The alternate view, in black, sees the double zigzag, labeled (w) (x) (y) as having completed wave (a).  Yesterday completed wave (b), and wave (c) is in progress now.  If (c) = (a), that would target roughly 1288 as the high for this move.

The NDX is in a similar position, with similar possible outcomes.  The difference is the NDX seems to be completing wave c of an expanded flat, which would then complete (z) of the triple zigzag.  (Is everyone thoroughly confused yet?  With the charts this messy, this is the best I can do for explanations, short of writing a book.  Sorry.) 

Next, the Philadelphia Banking Index (BKX).  The BKX is one of the few charts that looks semi-clear right now.  Interestingly, the BKX also seems to indicate that this is a fourth wave correction, not a second wave.  I have labeled it accordingly.  When the November decline first occurred, my instinct was that we still needed a fourth wave to complete the wave down.  Although I have the retracement on the prior charts (SPX and NDX) labeled as red wave (ii), there is still nothing to rule out the fourth wave option in any of the indices.  Note that the blue i and ii on the BKX chart represent the subdivisions of the larger wave 5.

Assuming the market heads down in the near future, we should be able to determine whether it's the start of wave (iii) down or the end of wave (i) down based on divergences in RSI and MACD.  For the fifth wave, we would expect positive divergences to develop in these indicators as new price lows are made.  If it's a third wave, we would instead expect to see momentum increasing.

 
And finally, the bullish alternate count.  This count continues to hang in there at 30% odds.  I am not yet favoring the bullish outcome.  For me to begin expecting a bullish outcome, the market is going to need to put together a stronger rally, with more impulsive looking waves than it has done so far.  It's certainly possible, and I'm not ruling it out -- obviously.  Ruling it out would be 0% odds.  But I'm not favoring it until the market gives me more concrete reasons to do so. 

The final wave up in this bullish count could end beneath the October highs, or run as high as SPX 1330 or so.  In ending diagonals, the final wave is almost completely unpredictable.

Short term, the market really needs to show some more structure before we can conclusively eliminate some of these counts. 

I'm taking a stand anyway, and continue to favor the view that the next short-term top is very close.  My preferred view is that we'll see a reversal begin at some point tomorrow; my first alternate is that we'll run up very close to the October 27 high before reversing.  However, at this moment, I'm far from certain of those conclusions, and they may well be proven wrong over the next several sessions.  Personally, when the market becomes this indecipherable, I don't try to front-run the move with my trades.  I stay in cash until the market reveals its intentions more clearly.  Trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

SPX and Dow Update: Sentiment Still Favors the Bears

Sentiment continues to remain bullish, despite the declines in the averages last week. 

Rydex funds are reaching ridiculous extremes.  Rydex funds offer a good proxy for retail investor sentiment; retail investors are small money, and for lack of a better, more politically-correct term, are somewhat considered to be "dumb" money.  Retail investors usually tend to be "late to the party," so to speak.  So what does retail investor sentiment, as indicated by Rydex, look like right now?  Here's a snapshot: 

Rydex bear fund asset flow levels have dropped to readings not seen since at least 2008 (hint: these levels are lower than any seen during the entire bull run, including the March '09 bottom).  Conversely, the Rydex bull fund asset flow has now risen to levels not seen since at least 2008.

That bears repeating:  Rydex bull fund asset flows are now at levels not seen at all during the prior bull market, including at the March '09 bottom.  What does this tell us?

It tells us that retail investors are rabidly bullish right now, more so than they have been in years.  So why does that matter? (Warning: some of the upcoming is stuff my more experienced readers already know.)

These types of extreme readings are generally good contrarian indicators.  Contrarian investing is based on the concept that people act on their beliefs: when the majority of people are bullish, it usually means they've already bought stocks.  Obviously, the stock market is controlled by the same principle as any other free market: prices are determined by supply and demand.  When there are more buyers than sellers, prices rise; when there are more sellers than buyers, prices fall. 

So if the majority of small investors are bullish now (as are the majority of large investors), that means most of those bulls have already placed their bets on the market rallying -- which means the market is losing more buyers by the day.  Eventually, this lack of buyers will leave prices no choice but to respond by heading lower.  When buyers become scarce, prices will fall even if selling doesn't increase.  

As prices fall, more of these former buyers become sellers.  Really strong declines are marked by increasing momentum -- usually the middle of the third wave (at any degree of trend) is when selling pressure really starts to peak, as more and more investors unload their positions into the falling market.  Eventually, as a bottom approaches, people are bearish again, and the whole process starts all over in reverse.

It's the great Circle of Bear and Bull life.

Market psychology seems to reflect the natural cycles of the universe: when the sun reaches its zenith, it can only descend.  Likewise, winter is followed by spring, yet inevitably returns.  A star may be born from the ashes of former stars; years in the distant future, it may explode as a supernova -- and from its remains, new stars are born.   Humans go through a similar life-cycle (although few of us actually explode, as far as I know). 

The only constant in the universe is the self-renewing cycle of change.  As a result of the undeniable realities of our existence, these cycles, patterns, and rhythms are deeply etched into our psyches and behaviors; and our markets end up reflecting these patterns.  Or perhaps market waves and cycles are not simply a reflection of us, but are instead part of the cyclical natural order of all things.

What never ceases to amaze me is the way most people project the future in only a linear fashion, despite the obvious cyclical nature of things.  If the market goes up for 10 days, suddenly the average investor believes it's going to go up forever.  Likewise when the market goes down for a time; suddenly people act as if it's going to zero.  Very few things in this world move in a linear fashion.  Everything from our love relationships to our business careers seems to oscillate in waves and cycles.  The understanding of this is what separates the smart-money investor from the average investor (and separates the average investor from his money!). 

Anyway, back to sentiment.  

I don't view contrarian investing as a means in itself, for the simple reason that in bear markets, sentiment can remain depressed for a long time -- just as the reverse is true in bull markets.  So, in my view, sentiment is more of a confirming indicator.  Where sentiment becomes the most valuable is when it reaches extremes; especially when such extremes are disproportionately reversed from the market's primary trend.  High bullish sentiment in a bear market is a very dangerous thing; although, again, it can remain elevated for a time as part of the topping process, and, of itself, doesn't necessarily portend an immediate reversal.

I personally believe we're in a bear market -- so I believe the current bullish sentiment is confirming what the charts seem to be suggesting: we are on the verge of a new leg down.

Anecdotally, most traders I know continue to talk about a year-end rally.  It seems many investors are hoping Santa Claus will come down the chimney and deliver liquidity to all the good boys and girls.  (What should worry everyone is who is actually on Santa Claus's list... remember, he knows who's been naughty and nice!)  But I tend to agree that we might see a year-end rally -- I just think it's going to start from lower levels.

The charts are continuing to suggest that the snap-back rally off the November lows will eventually resolve to the downside.  The exact level from which this resolution will begin is somewhat challenging to nail-down, however.  Below is my best guess chart of the short term count:

If this count is correct, there may or may not be a little bit more upside due on Monday.  My count of the smallest time-frames indicates that Friday might have marked another short-term top, so a gap-down opening on Monday is quite possible.  However, futures are flat as I write this, so it remains to be seen. 

A breach above 1263.21 would negate this blue "1-2?" count, however it would not necessarily negate the potential for more downside.  Under the preferred count, a break of 1263 would only indicate that wave (ii) up is still unfolding -- wave (i) down can only be KO'd with a break of the October highs. 

In the search for other possibilities, I realized that, with a slight shift of viewpoint, it is technically possible that this is still Wave 4 of (i) down.  Below, I have annotated the Dow chart to show how this is possible, and also sketched in some annotations to show how Wave 5 might stair-step lower:

The arguments comparing Wave 4 vs. Wave (ii) are pretty simple:  In favor of Wave (ii), we have the deep retracement of the prior decline (62%); this is an unusually deep retracement for a fourth wave.  In favor of Wave 4, we have the sloppy structure of the retracement; second waves are usually sharper and cleaner.  I am favoring the Wave (ii) scenario by roughly a 60% to 40% margin. 

Also arguing in favor of the entire bear case, are Apple's chart and copper's chart.

There are also, of course, possible bullish interpretations to the current market (there always are, otherwise this would be ridiculously easy and I could have all my charts done in an hour!), but unless the market gives us some reason to start favoring those interpretations, I see no reason to spend too much time worrying about them at the moment.  The key levels to watch are still the October high and the November low.  The chart below shows my main bullish alternate count and the key levels to watch:

These are historic times, and this is a historic market.  There is potentially a lot hinging on what happens to the market over the coming days.  If there's one thing that makes me the most nervous here, it's that my calls have been dead-on hits for a while now -- so these are the times I start to feel "due" for a miss.  If the landscape suddenly seems to be changing dramatically, I will do my best to alert you to the changes, and on how they may impact future projections.  Trade safe!  

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

Apple Update, 11-6-11: Studying Apple at Three Degrees of Trend

Much as I like Apple as a company, and mourned the death of Steve Jobs -- Apple's chart is not looking terribly promising for bulls.  When discussing the issue with a friend, one of the topics that came up is how Apple really is (or was) Steve Jobs.  The last products that Jobs had a direct hand in will be released in the fairly near future; and the charts seem to be indicating that either Apple will not recover well from his loss, or the world is going south fast.

From a broader market standpoint, Apple is clearly a huge market leader.  When Apple starts looking sick, it's not a good sign for the broad market.  In my opinion, Apple's charts are pretty clear that lower prices are coming.  By corollary, we can assume that this means lower prices for the broads as well. 

The most bullish short term scenario I can currently see would be if AAPL is forming an a-b-c lower (with wave a and b complete) for wave B of e.  I realize that my labeling of "e" may not fit the traditional Elliott nomenclature; sometimes I label things more for clarity of comprehension for those not overly versed in EWT.  (See wave "e" on daily chart, below... this is the same chart I posted when I called the top in Apple on October 18th).  I would give the B of e scenario maybe 15% odds.

On the 10 minute chart, it again appears that Apple is due more downside, which jives with the conclusion that the October high marked a significant top.  Early targets point to 350-373, though could easily stretch much lower.  Here, the most "bullish" short term scenarios I can see would be:

1)  This is part of an a-b-c as mentioned above (unlikely).

2)  Red Wave ii extends upward in some fashion (but stays below the October highs) before breaking the recent lows (very unlikely).

3)  Red Wave ii is actually a fourth wave, so we make a marginal new low (see black "Alt: 1") then rally slightly before we head down in earnest (possible, but unlikely due to the structure of the move down so far).

The one-minute chart below zooms in on the most current wave structure since Oct 30, and explains why I think the "Alt: 1" scenario shown above is less likely... though still possible:

All in all, I think AAPL presents a very clear case for lower prices.  In my opinion, this is about as good as it gets, chart-wise.  Nothing's 100%, but this chart series is the type that makes you lean into the 90% category.  It's always possible I'm wrong, but I would be absolutely shocked if Apple's next significant move isn't down.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com

You'll Never Catch Me, Copper!

Several readers have asked me to draw a chart for copper.  I've actually been working on one for a while, and finally decided to finish it tonight. 

Copper looks, in the words of the famous sheep, "Baaaaaad."  Copper seems to have topped at Cycle degree in 2011 (red "5" label, for Primary Wave 5).  If this count is correct, 2011 marks a major historical top.  To complete the top, copper seems to have put in an extended Wave V of 5, a fairly common occurence in commodities.

Copper's MACD histogram recently rose to -- and is now falling down from -- the highest reading in copper's entire history.  This strongly implies that the bulls have shot all their bullets for the time being.

Concurrent with the MACD peak, copper also appears to have completed a nested fourth wave at minuette degree.  The series of 1-2's I've labeled at the start of the decline this year could all be counted as a leading diagonal wave I at intermediate degree (blue I) -- but I honestly think these waves count much better as a nested 1-2 series.  Either structure is bearish, though, and calls for lower prices.  Due to the threat of overlap at blue waves 1 and 4 (assuming my count and labeling are correct), it appears almost certain that copper has now completed its entire wave 4 rally and should head lower.  

The chart's top panel shows the SPX.  Copper and the SPX have been strongly correlated since 2007.

Copper seems to be hinting that the stock market's

Minor Wave (2) rally ended on October 27.

The completion of red Minute iii is copper's next target, at roughly 2.79.  Percentage-wise, this target lines up very well with the current expected leg down in the stock market.  Copper's red Minute iii will likely bottom as the SPX bottoms Minute Wave i of Minor (3).

Trade above 3.75 would indicate Wave 4 is still unfolding; trade above 3.81 would call the blue 1-2-3-4 labeling into question.  Trade above 3.85 (in the near future) would be problematic for the entire count.

At the minimum, copper should ultimately revisit the 2008 lows again.  It could go a lot lower.

Please note that the little bit of sketched-in price lines I've drawn are certainly not intended to be time-accurate.  With the long-term chart, I simply didn't have room to draw it in a fashion even approaching an accurate estimation of time.

I have to tell you, after studying this chart (and several others) tonight, I am favoring my preferred bearish count in the stock market even more.

As a sidenote, some readers have asked how to bring the charts up in larger format.  To do so, simply right-click and select "Open in New Tab" (or "window").  This tiny default frame is Blogger's doing, not mine -- but that's how you can get around it.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com