SPX and VIX Update: VIX Diverging from SPX, and a Look at the Big Picture

Still no material change in the counts since February 8.  The higher prices we've been expecting since then have finally arrived, and I believe that this standing target zone remains the bears' best chance for a meaningful correction, due to a number of factors:

1)  The wave structure now counts as a complete five-wave move at higher degree.
2)  The SPX has reached the 2011 highs, which should offer resistance and present a zone from which bears could attempt a counter-attack.
3)  Bullish sentiment has been extreme for 8 weeks.

There are also some new developments which add some confidence to the view that a correction or reversal may be nearby, but again I would warn that anticipating trend changes is the toughest, and most dangerous, gig in trading.   So take these developments as cautionary signals -- but until the trend lines break, they are only signals.  The trend is your friend... at least, it is until it beats you over the head with a blunt instrument and leaves you for dead in a back alley.

Last week, I talked about the potential that VIX could be in the process of bottoming, due to the VIX:VXV ratio, and this next chart lends further credence to that idea.  There is also a divergence forming between VIX and SPX -- VIX has been making higher lows while SPX has been making higher highs.  VIX usually leads SPX, as the chart shows, since VIX tends to be a "smart money" indicator.

Next is the 10-minute SPX chart, which suggests that a solid correction is due very soon.   I would still like to see the 2011 highs broken, and ideally see the 1376-1378 Fib zone reached, though it's not impossible that wave 5 is complete with Friday's high. 

I would again caution bears that while the current price zone offers good odds for a correction, if said correction does not materialize soon, the rally could stretch on for a lot longer than most bears are willing to consider. Long-time readers will recall that I gave similar warnings about the 1300-1310 zone.

Trying to be smarter than the market is almost always a losing stance. If the market signals strength by breaking decisively through the 2011 highs, then that must be respected; just as 1300-1310 turning from resistance into support was a signal that needed to be respected.

I'd also like to discuss a couple of big picture potentials.  I'm going to discuss the preferred counts and the permutations of those counts, and then at the end of this discussion, I'll summarize quite succinctly what my preferred view currently is -- so keep reading if you become confused.   

The preferred count considers that the SPX is in a (c)-wave rally.  The main question still in my mind is whether the fourth wave of this rally has already unfolded or not.  My preferred view is that it has not, which suggests that a correction is due soon, followed by new highs.  I'll simply need to see what the next decline looks like to aid in determining degree of trend.

 

As shown in red on the chart, my preferred view is that the red Minute Wave (iv) correction hasn't happened yet, which means red (iv)-down and red (v)-up still to come.  The big challenge is that until some type of meaningful correction ensues, it is very difficult to triangulate exactly where we are in this count.

The alternate count is in gray and shows the potential that wave (iv) has completed already.  If it's already completed, then the market is closer to an important top than I think it is -- but this remains my alternate count for the time being.

The next chart is the big picture, and has a very large target zone as a result of factoring in both the preferred and alternate counts into that zone.  If the wave (iv) correction has occurred, as shown by the alternate count in the previous chart, then we're in that target zone already, so the chart below reflects that.

Sometimes we can anticipate the market well into the future, but other times we can only see as far as the next bend.  Once a meaningful correction takes place, that will allow me to refine the longer-term target zones.

EDITOR'S NOTE:  The first black 1-2 of blue Wave (5) of red Primary 5 isn't labeled.  I think most readers can see where those labels are supposed to go, and it doesn't change the count at all -- just an oversight on my part when I ran out of the allotted number of Stockcharts annotations.

 
The next chart is a slight twist on the long-term count, and is currently my first alternate for the big picture.  I don't like this count as much for several reasons, the main being that I feel it "forces" the count a bit.  However, this alternate count would confuse and frustrate both bulls and bears alike, and that alone gives it some degree of appeal.  I also like that it retains the idea that this current rally is the third wave of a third wave (c-waves are also third waves), which certainly fits the character of the rally.

In conclusion, let's see if I can sum all this up in a way that minimizes reader confusion...  to aid in this goal, I'm only going to summarize my preferred count; the alternates have already been discussed.

Over the short-term, I'm anticipating that the market is due for a correction very soon.  Over the intermediate-term, I'm anticipating that this will be a fourth wave correction at minute degree, with higher prices still to come after that correction completes.  Over the long-term, I'm anticipating that after this rally unfolds in its entirety (potential time-frame would be May 2012 for completion of the entire rally), the 2008 lows will be revisited, and likely broken. 

In the meantime, the trend lines remain critical.  While this talk of corrections is based on well-informed speculation and historical precedent, it remains merely a potential unless the market validates it. Trade safe.

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

SPX, Oil, Gold, Silver, US Dollar, NDX: Snapshots Across Markets

Yesterday both the preferred count and alternate counts anticipated a rally, which the market provided.  It ended up closing dead center in the target zone for the alternate count, which kept it from being eliminated.  The preferred count continues to anticipate some further upside, but both counts remain plausible. 

Since there's not much to add to the S&P 500 forecast of the past few weeks, I've decided to include a few quick snapshots of some other markets.  First, a quick update on the SPX charts.  The preferred count (below) continues to anticipate marginally higher prices, followed by a reversal from the wave 5 target zone.  My current expectation is for at least a 4-7% correction to ensue from this zone, but until the up-trend actually breaks, I wouldn't advise front-running this particular rally -- unless you're a nimble trader.

Next, a close up of the alternate count, which hit the target zone dead-on.  Trade above the 1367 highs would take this count off the table.

Moving on, below is a chart for silver. I've only published one article about silver in the past year: back on November 21 -- when silver was above 30 -- I predicted silver would move down to 25-27 to complete Primary Wave 4, and then reverse higher.  This is exactly what happened, which lends credence to this count.  This count anticipates that silver is now in its fifth wave up at Primary degree, and will eventually go on to new all-time highs.

Silver appears to be in the process of completing a perfect five-wave impulse move off the lows (blue wave 1), which suggests it's due for a correction soon, as illustrated by the blue "2".  Further, it's approaching two resistance lines.

Gold may be in a similar position, though I find gold's wave count difficult to pin down at the moment.  I would be more inclined to trade the trendlines on gold right now. Gold chart below.

Oil shows a much different pattern over the very long term, and its advance since 2009 does not appear nearly as constructive as either gold or silver.  It does, however, present a similar inverted head and shoulders pattern for the intermediate term. 

However, oil is massively overbought -- and as the RSI highlights show, similar RSI levels in the past have often preceded sizable corrections in oil.

These three commodity markets bring us, inevitably, to the dollar.  The dollar has been toying around with a key breakout level for over a month, and my expectation is that it's likely to be forming a base here.  Based on the Elliott Wave patterns, I believe the next meaningful move in the dollar will be up into the 85-87 zone.  This would seem to be consistent with the idea that oil and silver are due for corrections (gold's chart is more ambiguous).

Now, these expectations are based on Elliott Wave analysis.  The fact is, oil and gold have both broken out to the upside (silver has not), and the dollar is below an important support level -- so my expectations are running in direct opposition to the traditional technical patterns in these markets.  Despite my Elliott Wave expectations, these levels and patterns which contradict it should not be ignored.  It would be wise to wait and see how the market responds to these levels -- for example, going long the dollar while it's still beneath a key support level is front-running. 

In other words, a little patience may be in order.  The dollar closed right between two nice trade triggers, so one could play it either way, depending on how it breaks.  Dollar chart below.

The last chart is a short-term Nasdaq 100 (NDX) chart.  The NDX is forming a very clean ascending triangle pattern.  Ascending triangles are usually bullish, though not always.  A break out would suggest 50 points in the direction of the break.

In conclusion, there appear to be many good trade opportunities across various markets right now.  Regarding the SPX: we've been anticipating it would trade up into this zone since February 8, and as I've mentioned before, this is an excellent zone for a reversal.  However, this has been a very resilient trend, and most technicians will agree that this market has not been behaving in its "usual" way... so it's advisable not to get too anxious to buck this particular trend.  If this zone doesn't slow it down, it's likely headed into the 1400's next.  Trade safe.

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

SPX Update: A Tough Call

It all seemed so simple when I started writing tonight, but after studying the charts in more detail, it's not as clear-cut as I'd hoped.  I believe the wave down from the 1367 high counts best as a 5-wave impulse, which initially had me leaning in one direction -- however, this impulse could fit into the picture in one of two ways. 

1.  It was wave c of an expanded flat fourth wave correction, with a new high to come (preferred view).
2.  It was wave i of a much larger five-wave decline (alternate view).

I am leaning toward the first option, though it's a very tough call. 

Since February 8, I've been anticipating that the rally would reach this price zone -- but I now firmly believe that this leg of the rally is indeed nearing completion (possibly complete) and that a larger correction is due very, very soon.

My preferred view is that there will be one last high for this leg of the rally, in the 1371-1380 zone.  That count is shown in blue on the chart below.  The alternate possibility is shown in black and gray.

The 5-minute chart below depicts a possible topping formation underway, however that's the alternate count.   Breaks of the black channel lines and the red trend line will be the keys to watch on the downside -- a break of the recent highs would be key on the upside.

I want to expand on the alternate count briefly, and show how I arrive at labeling the decline as a five-wave move.  If the alternate count is playing out, the recent 1367.76 print high should remain intact.  Below is the alternate count shown in more detail.

Next is the 10 minute chart, which shows the larger, more important trend channel and various support zones.

And the final chart is another one of my proprietary indicators, which recently generated a sell signal. This particular indicator has a 78% win rate, though it doesn't predict the magnitude of a decline.

In conclusion, while both counts favor more upside on Thursday, the preferred count favors a slightly higher high still to come. I am now firmly convinced that, one way or another, this leg of the rally is wrapping up inside this anticipated target zone.  A moderate-sized correction should be on deck. 

Trade above the recent highs would indicate that the preferred count was correct and wave 5 is still unfolding, with a target in the 1371-1380 range.  Conversely, solid breaks of the lower trend lines would favor the alternate count.  I would remind everyone that while the counts strongly anticipate that the market is very close to a trend change, the upward trend is, as of this moment, still very much intact.  Trade safe.

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

SPX and VIX Updates: VIX Likely to Be Forming a Bottom

Yesterday the market traded up a little farther into the target zone, and has now satisfied the minimum requirements for the fifth wave up we've been looking for since February 8.   I literally spent six straight hours charting 10 different indices trying to decipher whether the fifth wave was complete or not, and basically all I accomplished was to give myself an absolute monster headache.  I'll just have to take another look after Wednesday's session.

Before we cover the future, a quick look at the recent past.  Certain readers who don't pay much attention seem to think I've been looking for lower prices recently -- but since the 1307 level was back-tested at the end of January, I have been looking for higher prices virtually every day.  At one point, I did suspect that a top might be in at 1333, but I also expected price to retrace most of that decline from 1333 to 1307 -- my target retrace was 1328, so there were only a few points missed on the upside there. 

After 1333 was subsequently broken, I have remained in anticipation of higher prices -- and while there have been some adjustments to the extremely short term projections (not all of which were successful) the preferred count hasn't changed at all since February 8.

For example, here's the chart from February 9, which I'm sharing because it illustrates why Elliott Wave remains a key tool in my arsenal.  When a system allows you to clearly and accurately predict not only a reversal, but also the reversal off that reversal, it's a pretty good system.

It seems that some people may get confused by the indicators and warning signals I share, and neglect the upward projections as a result.  I try to deliver all the relevant information I come across after each session, and then do my best to draw some type of conclusion from it.  Hopefully, it's not too overwhelming for most readers.

Anyway, moving forward; here's the updated 10 minute chart for the S&P 500 (SPX).  As I stated earlier, I am uncertain if the fifth wave has now unfolded in its entirety or not.  I still feel that the SPX "should" break the 2011 highs, due to the Dow and Nasdaq having done so, but I'm certainly not smarter than the market.

I also want to share my current view of the bigger picture, lest readers become confused as to what type of top I'm looking for here.  At this stage, I'm only anticipating a correction in the 4-7% range, though that target could certainly change depending on the shape of the initial leg of any forthcoming decline.  There's still an outside chance it could turn into a much deeper decline, as illustrated by the alternate count. 

Of course, this is all assuming the market ever corrects again.  This rally has gone on for a long time, and few people still alive have ever seen a correction as deep as 5%.  Hopefully it doesn't incite mass panic and suicides.

The final chart I'd like to share is a system that's been very reliable at picking bottoms in the Volatility Index (VIX).  For new readers, this indicator compares the ratio of the VIX, which measures one-month volatility, to the VXV, which measures three-month volatility.  When the ratio becomes too low, the VIX is usually due to bounce.  Sometimes it's only a small bounce, sometimes it's a big bounce -- the indicator can't predict magnitude.  But it's 11 for 12 at predicting bounces.

I'm not sure what the correlation may be, if any, to the last time this indicator gave three signals close together like this, but I've highlighted the last occurrence on the chart anyway.  VIX is shown in the bottom panel.

In conclusion, the SPX has reached the wave 5 target zone, and if the market is ever to have another correction in our lifetimes, then this zone would be a really good place to start.  The VIX indicator may lend some credence to that view.  I feel like a broken record with the trend line warnings, but the song remains the same in that regard: until the up-sloping trend lines are broken, there's still no reason for bears to get overly excited.  Trade safe.

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

SPX Update: Another Proprietary Indicator Suggests Caution

On Friday, the market rallied up into the lower end of the Wave 5 target zone, but the short term charts seem to suggest a bit more upside still to come for Tuesday.  Theoretically, this should be the last wave of this rally before a meaningful correction, and it appears likely that it will probably reach the high end of the target zone, in the range of 1370-1380 SPX, with an outside shot at 1385.

Once again, though, I'd like to remind everyone that the trend must be given the benefit of the doubt until proven otherwise.  Since December, every time this rally has reached a possible reversal zone it's bounced around a bit and then plowed right through it.  The central bank activity, particularly the activity of the LTRO's from the European Central Bank, have continually skewed the technicals and made analysis exceptionally challenging.

The technical indicators have been nothing more than twigs trying to divert a flood of liquidity. 

Speaking of indicators, another one of my proprietary indictors has issued a sell signal, and I'm going to share the details of this one with you.  This indicator measures the price ratio of the Nasdaq 100 (NDX) to the Dow Jones Utility Average (UTIL).  This indicator effectively measures the level of "risk on" trading present in the market.  When the ratio gets high, it means investors are piling into the high-beta NDX stocks while ignoring the more conservative utilities.

Since the demise of the NDX "superbubble" years (1999-2001, RIP), this indicator has worked very well, with a 75% win rate on sell signals.  On the chart below, the SPX is in the bottom panel.

It's somewhat amazing how many indicators are now reaching levels comparable to those reached at the 2011 top.  It will be quite interesting to see how this all looks in hindsight.  These are indeed interesting times, with the unprecedented level of worldwide government intervention creating something of a paradox.  Obviously, the central banks wouldn't need to intervene at all if the world was in good shape -- so the fundamental backdrop is clearly bearish.  However, the fact that they're throwing tons of money around trying to fix all these problems has, paradoxically, created a bullish environment for equities.

At some point, one would think that these imbalances will need to revert to the mean -- but they can persist much longer than seems reasonable.  As I've said before, my personal twist on Keynes observation is, "The market can remain insolvent a lot longer than you can stay rational." 

The next chart is the S&P 500 (SPX), which seems to be completing the fifth and final wave of this leg of the rally.  The charts currently indicate that a correction from these levels could take the market back into the range of the high 1200's to low 1300's.  Those levels will of course change if no correction materializes here.

In any case, that's in the future -- at present, there are several good arguments favoring the fifth wave interpretation, including the complexity of the previous wave(s).  Fourth waves are notoriously challenging, and on the 5-minute chart, we can see how much back and forth noise was produced since February 8.

The next chart is the 10-minute SPX chart, which shows all the math toward arriving at the conclusion that this is the fifth wave up.

The final chart simply illustrates some of the trend lines and channels on the Dow Jones Industrials (INDU).  It also highlights the first crack that's appeared in the trend.

In conclusion, this does appear to be the fifth wave up we've been looking for since February 9.  The one minute charts suggest 1370-1380 as the target zone... but the trend remains intact, and I continue to suggest not front-running a turn by anyone but the nimblest traders.  This rally has produced upside surprise after upside surprise, so all we can do at this point is be alert to the possible reversal zones, and see if the prices validate them by breaking down from the trend -- or not. 

The 2011 print high of 1370 should present next resistance, though I continue to believe that the market wants to break that 2011 high.  We'll see if that's all it wants to accomplish for now, and if sellers finally decide to make a stand in this zone.  Trade safe.

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

SPX and BKX Updates: Finally, the Fifth Wave

In honor of the fact that today is National George Stephanopoulos Day, I'm going to keep this update a bit on the short side. (Actually it's because I spent a good part of yesterday dealing with personal health issues, and have only had about 5 hours to work tonight.  But how much fun is it to say that?  No fun, that's how much.)

Yesterday, the market launched upward, finally beginning the fifth wave up we've been looking for since Monday.  There is still no indication as to whether the fifth wave will extend or not, so I went digging into a lot of other indices, and maybe found an answer in the Philadelphia ("The City of Brotherly Shove") Bank Index (BKX).  ( I was born in Allentown, PA, so I'm allowed to poke fun at Philly.  At least I didn't call it "Filthydelphia," like my father used to!)

The pattern in the SPX is a typical fourth wave blob.  Fourth waves are usually choppy sideways affairs and difficult to pin down -- basically they often act schizophrenic, much like the market acted this week.  On the one minute charts, the fifth wave looks to me like it needs a few more points of upside (at the minimum) to be complete.  The preferred target zone, assuming no extensions, is 1363-1368.

 
Since there's no real way to know ahead of time if this wave will extend and make Bob from those commercials even happier ("Why is Bob the Bull smiling?  Because he found out about Fifth Wave ExtenZe!"), I looked at all 56,000 other indices to try and figure it out.  The best argument I found against a fifth wave extension (sorry, Bob) is the BKX chart, below:

The BKX chart suggests a bit more upside, same as SPX, but then suggests a solid correction.  This is, of course, assuming I'm interpreting it right.  Obviously, there's no guarantee of that.  The argument that bothers me about the SPX stopping at 1368 or lower, for example, is that I'd really like to see it knock out its 2011 highs, which the Dow, Nasdaq Composite, and NDX have already done.  The vast majority of the time when the Dow makes a new high, the SPX follows.  And I'm still inclined to think 1376-1378 should act as a magnet for this leg of the rally -- so we'll see. 

In any case, the BKX chart would line up pretty well with the bigger picture count, as shown below:

Even if the fifth wave does extend, based on the one-minute counts, the odds are very good for an intra-day reversal today or Tuesday (depending on how long "The They" stretch out the micro fourth wave of this larger fifth wave).  Whether this expected reversal will prove to be only a very short term correction will have to be determined as the structure unfolds -- if it unfolds as a three wave move, it means higher prices on deck for this wave.  If it unfolds as a five-wave move and trades below 1340.80, then the odds become very good that the market is finally embarking on a meaningful correction.  Trade safe.

SPX Update: Apple's Intraday Reversal May Be a Signal for the Broad Market

The charts are a mess tonight.  While the big picture view has shifted somewhat over the past month, my daily short-term preferred counts have been on an exceptional win streak since the end of January -- catching the lion's share of the rally since 1307, and a good number of the turns.  But tonight I've looked at the wave structures across markets, and really feel like the market's quite undecided, and could go either way right here.

I'm leaning toward the idea that there will be more downside in store for this market over the short term, but my confidence is only marginal.  However, I've found a pattern in the New York Composite Index (NYA) which has nice clearly-defined breakdown or breakout levels -- so we can simply wait for the market to tell us what it wants to do next.

The first chart I'm going to share is the bigger view of the NYA, annotated with the interpretation I'm leaning toward.  The second chart is short-term, and annotated with the clear breakout/breakdown levels.

This next chart shows the clear levels to watch.  But before the chart, this next little bit of discussion is geared toward novice traders: a breakout or breakdown through a key level by no means guarantees that the market will follow through.  The key levels do, however, generally give you better odds of follow-through in the direction of the break -- and, more importantly, they give you levels to work from to determine stops and entries. 

Usually when the market breaks a key level, it will return to that zone to back-test it.  That back-test is usually considered the "safer" entry point.  If the market is unable to penetrate back through the key level, the trade is usually good.  However, it's always important to be on guard for whipsaws; so if the market breaks-out/breaks-down but then returns to that point and penetrates significantly back through the break point, it's likely you're in the process of getting whipsawed -- and it's usually advisable to close out and wait for another trade, or stop and reverse to the opposite trade.  Otherwise you risk turning a minor loss into something more substantial, because whipsaws are often followed by strong moves in the new direction.

Anyway, the chart below isn't as detailed as the first chart, but indicates the levels to watch.  Aggressive traders could play off the trendlines, and then use the key levels noted as further confirmation of direction.

The next chart is the S&P 500.  The fifth wave up may have completed yesterday, though I'm not crazy about the structure.  Also, the labeling on this chart doesn't match the NYA preferred count.  After studying the NYA, I'm more inclined to think that no matter what happens today, there's still another leg up coming after any correction.  I will solidify, or adjust, this chart after the market gives a bit more info.  In a more normal market, I would be convinced a decline was due right now -- but this market has certainly fooled us all a number of times already.

If 1335 doesn't hold as support, there's a bit of an air pocket down to 1321.

Yesterday, Apple had its first bad day in a while.  It gapped up and then reversed strongly on heavy volume, thus at least temporarily thwarting investors' plans to drive Apple's valuation so high that it becomes worth more than everything else on the planet combined.

There've been 3 other times in the past 15 years that Apple has rallied at least 2% to a new 52-week high, then reversed intraday to close down at least 2%.  Each time, the SPX declined at least -6.8% at some point during the following month.  Two of the dates were 7/9/98 and 8/19/98 -- the third was 10/11/07, and is shown on the chart below.  (Statistical data courtesy of SentimenTrader.com)

So that's about all the news that's fit to print.  In conclusion, the short-term charts appear a bit hazy, so  it's best to let the market dictate what it wants to do next, by paying attention to the key levels outlined.  The uptrend is still technically intact, though the market is now showing some signs that it may be getting ready for a more significant correction, and the historical data shows that Apple's behavior yesterday is yet another warning sign that this rally may finally be getting tired.  Trade safe.

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