SPX Update: Gaps Usually Get Filled

Yesterday, the market spent the majority of the session in consolidation mode, and formed a wave structure which looks corrective -- indicating that it's reasonably likely there are at least slightly higher prices to come before this wave completes.  The structure is vague enough that higher prices aren't guaranteed, though, and the rally has already completed the requirements of the larger waveforms.  My stance is that the reversal could begin at any time. 

The S&P 500 has overhead resistance in the 1300-1310 zone, and the market is now approaching this zone in an overbought condition, which severly weakens its chances of breaking though.  I would be quite surprised if the SPX can break through this zone for more than a head-fake, if at all.

Something my readers and I have discussed at length is the current market sentiment, which is now well-above historic levels for bullishness, and well-below historic levels for bearishness.  While this indicates that many traders have already committed to positions (i.e.- there are more holding long positions than short postions and thus fewer buyers),  the question has come up as to what might shift sentiment to bearish and increase selling pressure?  One thought as to what might accomplish this is that the United States is once again bonking its head on the debt ceiling.  It remains to be seen how this will be handled politically during an election year, but if it turns into another drawn-out gunslinging contest, the market could react in a similar fashion as it did last August.  Not that anything like that could ever happen... I'm sure we can rely on our elected officials to handle this issue peacefully, and in good taste (excuse me for a moment while I fall out of my chair laughing).

In any case, the charts continue to suggest that the market is forming a top in this zone.  The first chart I'd like to share is the one-minute SPX chart.  I've simplified this chart because there are now a number of viable ways to count the current wave structure, but they all seem to end in roughly the same place: somewhere between here and 1310.

The next chart outlines some support and resistance zones which are below and above the current market.  The trendlines run back a long time in some cases, but in order to make it readable, I had to zoom in on the current price action -- so the beginning of some of the lines isn't shown.

The last chart shows some of the unfilled gaps which are beneath the current market, which is a result of the fact that so much of the rally has occured in the overnight futures market.  The vast majority of the time (nearly 90%), gaps of this type are filled within 100 days of when they occur.  Obviously, there's never any guarantees, but this seems to be one more suggestion that the market will soon retrace this rally.

My expectation remains that the next move after the market finally turns will be a break of the October lows. For the longer-term charts, please see yesterday's article.  Beyond that, there simply isn't much more to add to the last few updates.  I'm starting to feel a lot like I did at the December top when I spent nearly a week suggesting that a turn was imminent, and I was even starting to repeat myself (repeat myself).  Unlike bottoms, tops take time.  To sum it up, here are some issues which support the bull and the bear cases:

In support of the bull case: 

1) The market is still in an uptrend
2) There were several resistance areas broken over the past couple weeks.

In support of the bear case:

1)  The market is overbought, and approaching resistance.
2)  The wave structure supports a top.
3)  Sentiment is exceptionally out-of-whack to the bullish side.
4)  The market has numerous unfilled gaps below.
5)  Several indicators which were triggered over the past few weeks suggest the market needs to return to lower levels.
6)  The put/call ratio is reaching extremes where tops normally form.  Conversely, the OEX put/call numbers suggest that smart money is placing bearish bets.  Unlike equity put traders, OEX put traders are right more often than they're wrong.

While my style is to try to anticipate the market by shorting near resistance and buying near support, I am also quick to exit if a trade goes against me.  My expectation is that a top is forming, but more conservative traders may want to wait for some type of actual confirmation of a trend change, such as a break of the lower short-term trendline, or a break of the trendline which connects the November lows and the December lows.  Trade safe.

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

SPX and Nasdaq Updates: Long-term Charts Show Market Faces Key Resistance Levels

Yesterday, I spoke about the possibility that Minor Wave (2) up could complete its top within hours, and it's entirely conceivable that came to pass yesterday.  Once again, the market gapped up, and once again, the bulls took it nowhere after the futures gap. Back in December, I dubbed this the Buyerless Rally due to the fact that the majority of the rally has taken place in the overnight futures market, with very little movement coming in the cash market.  That continues to hold true, and I still believe this is a sign of distribution.

The Minor (2) top could have completed yesterday, however, the very short-term wave structure also allows for the possibility of one small thrust higher, so we'll see what happens in the next couple sessions.  1300-1310 remains as the next level for this market to beat.  Given the extreme bullish sentiment, and the fact that indicators such as RSI and MACD have been losing momentum and diverging bearishly for some time now, it's difficult to imagine the market will find the steam to push through right now. 

It bears repeating that Elliott Wave patterns are created by mass psychology.  When the majority are in one camp (i.e.- bulls), it's time to start betting the other way.  All the talk of a new bull market, and the recent laws passed in several states which now make it legal to hold public stonings of bearish investors, are both fully consistent with a major second wave top.

Several key long term resistance levels are now lurking just overhead.  The market has already broken out over a few important levels, but still has a lot of work to do before I consider turning long-term bullish.  The first chart is a daily look at the S&P 500 (SPX), and shows some significant overhead resistance in the 1300-1310 zone.  If the market can somehow break through that zone, it would open up the 1330-1350 area as a possible target.  My expectation, however, is that it will not break through this zone.

The next chart is the Nasdaq Composite (COMP), and shows it's in a similar position as the SPX, with key resistance just overhead.

The next chart is my preferred short term wave count, which shows the rally may have ended yesterday. The one-minute chart suggests the possibility that yesterday's spike high may have only been the internal third wave of wave c of v of C of (y) of Minor (2).  If that's the case, then there's one more ever-so-slightly higher high coming before it rolls over for real.  But it's not required, and the market could very well roll over immediately.

A break of 1283.05 would take that very short-term option off the table -- however it would not rule out the alternate count shown in the chart which follows this.  A break of the first wave a high at 1242.82 should serve as final confirmation that this wave up is complete. 

The next chart is the alternate interpretation of the wave structure (not the interpretation I'm favoring, in other words), and suggests that 1310 +/- might be the final target for the rally.

I want to follow that chart immediately with an interesting analog from 2001-2002.  What I find most interesting in the following chart is the fractal comparison between the first leg of its rally and the first leg of the current rally (from the October lows).  The structures look almost identical.  You can also see that in 2002, the market lolly-gagged around near that first high for several months (much like the current market) before finally rolling over and dropping 35%.

Another chart I wanted to share was the put/call ratio, which has reached extreme levels that are generally consistent with tops... however, Stockcharts has gremlins which randomly delete my charts (this is the third one that's gone missing without a trace; the Stockcharts server is apparently located in the Bermuda Triangle), and I simply don't have time to recreate it tonight. 

The last chart's the Dow, labeled with the preferred ending diagonal count.

In conclusion, I remain long-term bearish on this market, and unless the market can break overhead resistance, I am now short and medium term bearish as well.  Based on the wave structure, I believe something is "destined" to occur in the very near future to wake investors up from Bullish Happy Fun Land, and this wake-up call will rapidly turn sentiment from bullish to bearish.  When that happens, there will be a fast stampede for the exits.  Trade safe. 

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

SPX and BKX Update: The Moment of Truth

In a perfect world, the completion to the Minor (2) rally would mark a new high which exceeds the October top.  My preferred count of an ending diagonal suggests that perhaps the session today or tomorrow will finally complete that top.

Since Wednesday, the market has kept us guessing about its short term intentions, while it's traced out a pretty ugly consolidation in the meantime.  As I write this, the futures market is trending higher, so hopefully today or tomorrow will finally provide an answer to the question of exactly where Minor (2) completes. 

Assuming the big picture count is correct, the suggestion is that a large and extended decline in equities is just around the corner.

There really isn't much to add to the information presented in the articles over the past few days.  One chart worth updating is the Philadelphia Bank Index (BKX), which has so far performed in accordance with the projections posted in Friday's article -- which expected more upside and a new high for this move.  Both those things have happened, but further upside is still expected.  The question this chart poses is whether the BKX is forming an extended fifth wave, which is nearly complete (blue count); or if this current rally is only part of the third wave of wave c of (y) (black count).  The diverging RSI and MACD seem to argue that the extended fifth wave is unfolding.

The S&P 500's (SPX) preferred count of an ending diagonal would look perfect with one more lunge higher, ideally above 1292.  The implication of the very short-term wave count on the chart below is that the price should not exceed 1301.24.  Even in ending diagonals, the Elliott Wave Theory rule that the third wave cannot be the shortest wave still applies.

Below is an alternate interpretation of the short-term wave structure.  If the market exceeds 1301.24, then the count below (or some slight variation thereof) will move into the preferred role.

Beyond that, there simply isn't much to add to the technical picture from the last few days.  One of my favorite, and very reliable, indicators is approaching a major sell signal.  A decent rally on Tuesday is likely to trigger the indicator, and that sell signal would coincide nicely with the ending diagonal wave count which believes the top could be just hours away.  Trade safe.

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

US Dollar Update: Dollar Rally is Just Gettin' Warmed Up

[NOTE:  Intraday market discussion is being held in the comments of the SPX Update (next article below).  Please join us there.  :) ] 

The dollar continues to track my roadmap from September 3rd, when I first suggested a massive rally was on the horizon.  The most recent update from October 29 nailed the bottom perfectly -- and if the dollar continues to track, then the dollar rally is about to accelerate even faster. 

The dollar appears on the verge of entering a nested third wave advance, which should soon explode to the upside.  I have updated the daily dollar chart to show the targets for wave (iii) of iii of (3).

If the short-term count is correct, the dollar may do a little backing and filling first, before launching higher in wave 3 of (iii).  79.83 is the level that needs to hold for the short-term view that the dollar has entered wave (iii) to remain viable.  At the hourly level the dollar appears to have completed a small five wave advance, and may be due for a short-lived correction.  Correction target box in yellow on the chart.

It bears mentioning that this first wave is a very good-looking impulse wave -- about as clean as they get.  If this is indeed the beginning of a nested third wave advance, it's always possible that the correction won't even make it down to the 38% Fib zone.

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

SPX, NYA, Dow Updates: Top in Sight; No New Bull Market on the Horizon Yet

[Two important notes to readers:

1)  To bring up larger charts, right click the chart with your mouse and select "open in new" tab or window.  The NYA chart is big.

2)  This site now requires that you register a valid e-mail account though Disqus in order to post comments.  If your comments aren't showing, that's why -- so please register your account.  Sorry for any inconvenience, but I'm tired of dealing with the same BS over and over.  First offenders will be warned; 2nd offenders will earn themselves a one-week suspension.  Repeat offenders will be banned without further notice.

3)  How to Register:  Enter a comment, click "Post as" -- a box will come up asking you to enter your email and password.  If you don't already have a valid account, then select "Register a New Account" underneath the password box and follow the instructions.  TY]  :)


I've spent a lot of time this weekend examining charts, and rigorously challenging my assumptions regarding whether a new bull market could be starting or not.  After studying the charts from as many angles as I could, including upside-down (well, more correctly: inverted), I remain of the long-term bearish persuasion. 

I'm going to get right to the charts, because there's a lot of them.  Again, I believe the top is either in already, or will be after one more lunge higher. 

The first chart I'd like to share is a long-term chart of the NYSE Composite Index (NYA).  For new readers, I often like to examine the NYA because it represents a very broad look at the market, unlike the popular SPX and Dow, which have been culled of many of the weaker common stocks.

This NYA chart presents some interesting results.  I've drawn a Fibonacci fan from the 1994 low to the 2007 high.  I chose 1994's low because it was the last important low before 1995, and I believe 1995 was (arguably) the start of the stock market bubble.  Some may recall that 1995 was when Alan Greenspan gave his famous "irrational exuberance" speech.  (That's my recollection, anyway.  Maybe I should look it up.  Nah, I've done enough this weekend.)   ;)

Notice how those Fib fan lines have acted as support and resistance over time.  The 2008 crash started with a violation of one of these Fib lines.  In 2011, the market "returned to the scene of the crime" and backtested that same line from underneath.  The 2011 decline started there, and was then caught by the lower Fib line.

In red, one can also see a huge potential triangle which has formed since the 2007 top.  Volume has been falling steadily since 2007, which confirms the triangle pattern.  The triangle implies a move of 60% (6205 points on a measured basis) from the breakout/breakdown level, at either the upper or lower trendline.

There is a trendline of some importance which is called-out as well.  This trendline has acted as support and resistance for many years, and has been well-established with seven touches.  The market is still living beneath this resistance zone.

The massive multi-year potential head and shoulders pattern is also noted.

I did examine this chart in logarithmic scale as well, and both scales yielded many similar results.  I've selected the linear scale for presentation purposes.

Next is the long-term Dow chart, which shows some similarities between the current market and 2008.  It also shows how the Dow is still beneath some very important resistance levels, and notes the formation of a bearish rising wedge off the October 2011 lows.  The pattern is now complete, with the requisite four alternating touches of the upper and lower trendlines.

Rising wedges imply a rapid return to the start of the pattern once broken.

Next is the daily SPX chart, which shows the series of potential reversal candlesticks which formed last week -- right inside the target zone -- and notes some areas where similar candlesticks have occurred.  Not shown, the DIA and SPY weekly charts both show weekly topping/reversal candlesticks, and if the market gapped down on Monday, this would create a potential island reversal top.

Next is the chart of the hourly preferred count, which still believes that either the top is in place already, or it will be very soon.  The implication of this chart is that a massive top is, at most, only a few sessions away.

The next chart is an indicator chart I touched on the day after it triggered, but I want to take this opportunity to remind readers that this indicator is still "hanging" out there, unresolved.  This indicator suggests that the market still "owes" us a lower low beneath 1248, where the signal was triggered.

The final chart is a look at some alternate short-term potentials for the market to resolve the Minor (2) top.
The chart below is not my preferred count, but is instead provided to help readers recognize some of the additional possibilities still remaining.

The chart is an attempt to "think outside the box" and suggests a few final waves to confuse technicians and throw them off the trail a bit.  Some Elliotticians are suggesting that the move from 1284 to 1265 is a leading diagonal first wave.  This is plausible, however the first wave of an impulse move generally should take out the next key low, which that move did not.  This chart suggests that said move may have been a leading diagonal a-wave, as part of wave iv of the larger expanding ending diagonal (see black count). 

The blue count suggests the same alternate discussed on Friday, of a more conventional five-wave move to complete wave c of (y) of Minor (2).  The chart notes some invalidation levels (knockout levels) for each count.

In conclusion, I believe the evidence continues to point to lower prices over the long term. My short term opinion hasn't changed since Wednesday: either the top is in, or it's very close.  The US Dollar seems to be confirming this view (See US Dollar Update). 

I remain of the belief that the October lows will not hold, and that the market is within days of beginning the next leg down, which should move rapidly lower once it begins.  Trade safe.

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

SPX and BKX Update: The "Wear-Ya-Out" Market

The last time I felt the charts were this challenging was on September 29, 2011.  That was the market getting geared up to reverse and turn into the October rally.  I ended up nailing the turn to the day, but a few days before it happened, the charts got really messy.  The market often gets most confusing near major turns as it tries to grind everyone up, and right now it feels like the market just doesn't want anyone to know exactly what's coming next.  Many of the other technical analysts I periodically check in on seem to be expressing similar angst -- at least the ones who don't just shoot for the easy answers.

Yesterday was another one of those "do nothing" days that doesn't aid much in analysis.  The possibilities put forth on Wednesday and reiterated yesterday still stand.  The top may be in, or another lunge higher may be in the cards.  Let's start with the preferred count, and then I'd like to share a couple alternates.  The first chart is the preferred ending diagonal count, and suggests that one more lunge higher may be needed to complete the rally -- though it's not required.

Now let's discuss some alternate possibilities.  I uncovered a potential in the Philadelphia Bank Index (BKX) which will probably not thrill bears -- there is still the potential of a bit more melt-up from these levels.  Here's the BKX chart, so you can see what I'm referring to; I'll discuss this further beneath the chart. The blue count agrees with the ending diagonal preferred count; the black count does not.

The chart annotations explain some of the positives each count has going for it, however there is one additional mention that the black count has in its favor: the target of roughly 45 equates to both the Fibonnacci 1.618 extension of wave a, and the target given by the equation where wave 5 becomes equal in length to wave 1.  When two forms of targeting both agree on the same number, it calls for caution. 

That said, the issue I have with the black count is discussed on the chart: momentum should have increased during the third wave, not decreased.  So I am somewhat torn, and unable to give an edge to one count or the other at this moment.  Hopefully Friday and/or Monday's action will help.

The next chart shows how the S&P 500 (SPX) could track the BKX if the "more melt-up" scenario unfolds.  The other thought regarding this scenario is that a move like this could break the last of the bears into capitulating.  Surprisingly, despite the AAII sentiment numbers of 17% bears, there are still a reasonable number of us who haven't yet been shot or had to gnaw off our paws to escape traps.  A final push that sustains trade over 1300 for a few days would probably get most of the remaining bears to cover their shorts. I like to say those are the levels where the big players sell their shorts -- which are then bought by all the retail bears who are covering theirs.

Anyway, this SPX chart shows how to count this potential in line with the information revealed on the BKX chart.  The blue 5th wave would target the 1310-1330 zone under this count.  Again, hopefully the next couple sessions will reveal if these alternate counts have any legs.

The ongoing observation I have is that the SPX has not performed at all in line with expectations for a "normal" c-wave rally.  The third wave in particular was weak thus far, and had a very deep fourth wave retracement.  This suggests several possibilities, such as those discussed, but we're still left with unanswered questions. 

There are now many divergences beginning to crop up on the indices and on individual stocks, and this too suggests that the rally is not much longer for this world.  The patterns being formed are suggestive of a distribution top.  I remain of the belief that this is the last rally before an extended decline -- but the market isn't making it easy on technical analysts to pinpoint the top.  I'm sticking to my call for a reversal in the 1269-1310 zone.  In a perfect world, today's market would run higher to complete the ending diagonal in the 1292-1310 zone, then reverse and call it a day.  Keep in mind that non-farm payroll days often line up with major reversals.  Trade safe.

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

SPX Update: Bears Have Left the Building -- Look Out Below

I think being long this market right now is exceptionally risky.

Yesterday, I suggested that the sentiment survey due out today from the American Association of Individual Investors would indicate that sentiment levels were reaching bullish extremes.  The survey actually exceeded my expectations: not from the bulls so much, but from the lack of bears.  The percentage of bearish investors is approaching the lowest levels of the past decade, and this type of sentiment is generally bad for bulls. If most of the buyers have already bought, and most of the short-sellers have already covered, the market is going to have a hard time putting together a meaningful rally.

This is when it's most challenging to be a bear -- when virtually no one else is (the same applies to being bullish, like I was at the beginning of October)... but this is also when it's most profitable. 

Sentiment data is not to be construed as a guarantee of an immediate top (or bottom) -- in fact, the last time the bearish percentage was this low was December 2010, and the SPX went on to rally another 100 points before putting in the 2011 top and crashing over the summer.  Prior to that, one has to go all the way back to July of 2005 to find bearish investors this non-existent (the market fell through the rest of July); one can also find readings this low near the 2002 top (in February/March of '02 -- market lost over 30% afterwards), and near some of the major tops of the 2001 bear market.  But one can't trade on sentiment alone, because extreme readings can last a long time; however, this is a strong confirming indicator to the wave structure of the Minor (2) top.

It also suggests an ongoing state of suspended disbelief in the fundamental problems facing the world governments and economies.  Just as a few examples of the differences between now and the last time we saw readings this extreme:  back in December 2010, the TED spread was less than half its current level of 0.57, Italy's bonds were yielding around 4.5%, and QE2 was alive and well and feeding the stock market with liquidity. 

The market action yesterday finally took some of the short-term options off the table, and the call I made yesterday now appears to be the correct read:  either the top is in already, or there's one last spike high coming (ideally, just above the October highs, but not required).  

The Minor (3) decline should be just around the corner.  To reiterate a bit, I expect the first leg of Minor (3) to take out the October low of 1074.  My ideal target for the S&P 500 (SPX) is 1000-1050, however, wave extensions are always possible, and the 800's would not be out of the question.  It's been a frustrating market for swing-trader bears since the October top, with the bullish alternate counts seeming to win at every turn (although, a lot of points should have been picked up by the more nimble traders who took profits in the target zones).  The days of bear frustration should finally be drawing to a close.

Below is the intermediate term chart, which is unchanged of late:

The second chart I'd like to share is a very short-term chart, and presents a slightly altered take on yesterday's ending diagonal.  I'm genuinely not sure yet which diagonal could prove correct (assuming the top isn't in already), but the overall feel of an ending diagonal is certainly present, and the three-wave rallies seem to confirm that.  For those not well-versed in Elliott Wave, an ending diagonal consists of five 3-wave moves, and generally indicates buying exhaustion, as a balance is being reached between buyers and sellers.

My solid expectation now is that the top is either in, or will be after one more spike high.  I would take a very cautious stance with long positions at these levels (i.e.- I wouldn't hold longs here, personally, at least not for more than a short trade).  The temptation is always to go long after the meat of the rally is over, and your linear-projecting brain thinks it's "safe."  That's essentially what fifth waves are: the stragglers who missed the turn trying to jump on a bandwagon they already missed.  Another term for these traders would be "the bag holders" because they're the ones buying at the top (or selling at the bottom).  Successful trading often involves doing the exact opposite of what your emotions want you to do.

The last chart is the ending diagonal speculative count shown yesterday.  As I said, I'm genuinely not sure exactly how the end will shake out here -- the chart above and the one below are both completely viable, as is the view that the top is in.  We're really picking nits when we're talking about a couple percentage points of upside verses 20% or more downside.  The larger point I'm trying to drive home is that I don't believe this is a zone where swing-traders want to establish long positions -- exactly the opposite; I think swing traders should continue establishing shorts.  Nimble day traders are another matter, of course. 

What I like about the chart below is the "shake-out" factor it presents, both to weak longs (who dump when this heads lower) and to weak shorts (who dump when it heads higher).  It would simply be the path of greatest confusion.  An interesting factor to keep in mind is that Friday is a non-farm payroll day.  I've mentioned this before, but it bears repeating: on non-farm payroll days, the market often reverses from the direction of the open.  So if the open is down, it often reverses up and vice-versa.  Again, like everything else, this is just another odds-on favored historical fact; it doesn't guarantee a reversal.

On the other side of the coin, what I like about the count which suggests that the top is in already is that I don't think anyone's expecting that at all.  Major tops and bottoms should always leave the majority expecting the trend to continue, even if it's "just a little farther."

In conclusion (if you haven't already figured this out from the body of the article), my expectation is unchanged from yesterday: either the top is in already, or it will be after one more lunge higher.  Trade safe.

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