SPX Update: This Zone Represents a Confluence of Targets

I did a lot of work on charts tonight, but I'm going to keep the update short, sweet, and simple.

Yesterday's market traded right into the target zone.  I now believe there is a turn coming either today or Monday.  I suspect today will be mostly choppy sideways movement with a slight upward bias -- though the turn could come later in the day.

The question I'm trying to answer is how significant this turn will be.  First off, I'm assuming this turn will come, so that's presupposition #1.  Obviously, there are no guarantees it will.  Going along with that presupposition, and assuming this turn does come, it could end up being only a small fourth wave, and lead to new highs afterwards.  However, I'm now leaning a little more toward the idea that this assumed turn will be a larger turn.

Obviously, this is entirely speculative since the charts show nothing bearish whatsoever in the form of key trendline breaks or breaks of any key support levels.  I could very well be wrong, especially considering this is into the teeth of a strong rally.  So what could make me possibly consider a larger turn here?

Well, this zone does have some interesting characteristics. 

1) 1406 is a long-term resistance level.  The rally has come far and fast, and while it's possible it will just power through this resistance, there is no reason to assume it will.  In fact, going long just under this level is front-running -- until the rally breaks it and it becomes support, then this old resistance level should be given the benefit of the doubt.

2) 1406/07 is where wave (v) will equal wave (i) times .618; that provides resistance as well.

3) 1407/08 is the target from the bullish trade trigger which elected on March 13.

4) The short-term wave structure looks nearly complete.

Here are the charts, short and simple.  I'm leaning toward the black count on the 5 minute chart; the red count on the daily chart.  Okay, that's not short and simple -- sorry, I don't have time to change the colors now. 

Anyway, my best guess for an approximation of what today's action will bring is sketched in with the blue lines on the 5 minute chart.

As I said, I'm leaning toward the black count below.  Trade beneath the red KO level would rule out the blue wave 4 potential, but it seems incredibly unlikely that would happen today, barring Bernanke showing up on CNBC dressed in a chicken costume and singing "Old MacDonald."

Next the bigger picture chart.  This chart shows the long-term support and resistance levels.  If the interpretation I'm leaning toward is wrong and the market powers through 1406, then next resistance is around 1425, and then 1440 above that.

And finally, I do want to show a more bullish interpretation, again keeping it simple.  This uses the Dow Industrials for illustration purposes.  If the SPX can maintain trade above 1406, then this could be how the market unfolds over the coming sessions.

In conclusion, I suspect today will be mostly sideways up, with a turn coming either later in the session or Monday. 

But it bears repeating that until the trendlines start breaking, there is no indication that anything bearish is happening.  The first trendline bears need to claim is the black line shown on the short term chart.  After that, they need to capture the red and black lines on the second chart.

Until those things happen, this is simply my speculation based on a number of observations -- and quite frankly, I'm way out on a limb here. So if one even considers shorting here -- perhaps just under 1406 resistance, or perhaps if the market trades above then falls back below resistance -- then stops should be used (as they always should, in my opinion), and one needs to have awareness of the fact that if the market can sustain trade above 1406, then 1425-1440 become the next targets.

If the short term counts are right, today will probably have a lot of whipsaw action around this zone, so it could be tough to trade.  And the possibility clearly exists for the market to move much higher more or less directly from here -- so the "safer" thing for shorts to do might be to wait and see if the bears can retake support near 1397.  As always, none of this is trading advice, and you should always consult your broker, your accountant, your priest, your barber, and your weird Uncle Bob.  Trade safe.

SPX, RUT, NYA, BKX: Giving the Bears Some Airtime

I hate "lazy" charting, and I think it's important to constantly challenge one's assumptions.  During yesterday's session, I began considering the possibility that my initial labeling of the smallish correction back on March 12 as a 4th wave might actually have been correct, and that we were witnessing an extended fifth wave.  The rally does have a "blow off top" feel to it, which is characteristic of an extended fifth wave.

To try and sort things out, I've charted a few other markets, and as of this moment, the extended fifth scenario for SPX looks quite plausible.  That could certainly change with a little more price movement, but I think it's worth considering the possibility, especially since the NYA and RUT seem to support this scenario. 

Have a look at all the charts and see what you think. 

Extended fith wave or not, the first thing that definitely bears mention is the fact that if the count below is correct, then wave 3 (or 5 if it's an extended fifth) should not exceed 1408.16, due to the length of red wave 3 (see below).

Minimal annotations on the big picture chart below -- I've left the target box for the more conventional count, though I've turned it yellow to reflect caution.  ;)

Here are some charts where the more bullish count seems to run into trouble.  First, the NYA:

Next, the RUT:

And finally, the BXK:

And now the warnings and the take-away.  Really, at a larger scale, everything (except for the Trannies) looks very bullish as of this moment.  If it's a whipsaw head-fake, that's how it should look... but of course, sometimes a duck looks like a duck because that's actually what it is. 

If the bears can't turn these breakouts into whipsaws in the near future, then they may have to go into hibernation for awhile.  Given all the charts we just looked at, though, it seems the bears may have a black swan event up their sleeves.  It is important to realize, however, that until some key levels are broken on the downside, there is no confirmation of anything bearish.  This could be an extended fifth wave, and still only prove to be wave i of 5.  Without confirmation, there are only probabilities and speculation.

Given the appearance of the structure in all the charts as of right now, there is a decent probability that we are witnessing an extended fifth wave unfold in SPX; aka - a blow-off top.  After taking a look across markets, I'm leaning toward that outcome, and it will be interesting to see what the market does over the next few sessions to confirm or deny that theory.  If this is an extended fifth of wave (v), then this next turn will be a big one.  Trade safe.

SPX Update: That About Sums It Up...

Well, yesterday cleared up the counts quite nicely.  The bullish trade trigger at 1374 elected and from there, the market pretty much traded straight up with zero drawdown.  That trigger targets 1408. 

We now have solid confirmation that wave (iv) did indeed complete at 1340.  Preliminary targets for (v) are 1432-1465. 

The dollar also rallied yesterday, proving once again that markets aren't always correlated.

Straight to the charts.  Since everything has clarified, I can project some likely target zones for each wave.  First the 5-minute chart, and the probable target for blue wave 3.

Next the 30-minute chart, for context and the larger wave (v) targets.  If you'll note the RSI momentum has exceeded any so far produced by this rally.  Those looking to short would be advised to take a step back and wait -- moves almost never reverse significantly without first building a momentum divergence.  A divergence exists when prices make new highs, but momentum fails to exceed its old high.  Currently, no divergence exists, which makes higher prices extremely likely.

Next, a couple of Bollinger band charts; one of the SPX, and one of the VIX.  SPX closed outside its upper Bollinger band, which doesn't happen too often; and VIX closed outside its lower.  These signals often indicate that an intermediate top is getting closer.  Once again, I do not expect an immediate top here by any stretch -- I expect higher prices first.

In conclusion, the move appears pretty straightforward, and while not exactly "anticipated," since the signals were a bit conflicted, it's not at all unexpected either.  Once the bullish trade trigger elected, the market declared its intentions and was off to the races without looking back. 

I expect higher prices over the near term, though there should be some 4th wave sideways/down corrections along the way.  The market's next significant turn is unlikely to come until at least the mid-1400's.  After wave 3 completes, targets will become more accurate.  My SWAG right now is 1440.  Trade safe.

SPX, VIX, and US Dollar Updates: What's Bullish; What's Bearish

Yesterday was the type of day technicians dread, because literally nothing happened.  What possible new insights could anyone have after a day like yesterday?

So I've decided we're going to play a game called Quien Es Mas Macho?  Sorry, bad SNL reference there.  Actually it's called What's Bullish; What's Bearish?

Let's start off with what's bullish. 

First off, we have the SPX chart.  This chart is still quite bullish intermediate-term.

The short-term SPX chart looks bullish as well, though I would expect a deeper retrace than we had.  The retrace from the last couple days doesn't look deep enough to be a 2nd wave, so I have relabeled the chart.  If it was a 2nd wave, then bears are in real trouble.  2nd waves usually retrace 40-60% of the prior move.

Bears will immediately notice the alternate count, which allows for the possiblity that the rally off the 1340 print low will end very soon and constitute ALL OF wave (v).  This is indeed possible, but generally one would expect more from a fifth wave at this degree.

Please note my annotation regarding the bullish trade trigger.  I was anticipating a deeper retracement than the market gave us yesterday -- and without that deeper retracement, I feel the potential for whipsaws around that trade trigger is markedly increased.

Also bullish is the fact that the Dow Industrials have closed the last 3 days above their 2011 highs.  This is a key breakout level for the Industrials.

Now it's time for what's bearish.

First off, as I spoke about yesterday, the dollar looks bullish -- which is generally bearish for equities. The dollar continues to maintain closes above its key trigger level.

I also did a short-term dollar chart last night, and the dollar has so far proved this chart quite accurate.

Another potential bearish factor is the VIX, which basically closed right on its lower Bollinger band yesterday.  This often leads to a bounce in VIX, which is usually bearish for equities.  Further, the VIX has reached a long-term horizontal support zone, which may also argue for a bounce soon.

So, it's still a market of mixed messages.  Unfortunately, the market gave us nothing to work with yesterday, so putting the possibilities all together on one chart looks very similar to yesterday's.

 
In conclusion, the market didn't give us much to work with on Monday.  While the SPX charts don't look at all bearish, the dollar seems like it may have plans to put the damper on things.  Unless we have another day like yesterday, these questions should resolve soon.  Trade safe.

SPX, Dow, and USD Updates: Signals Still Conflicted

There are a number of conflicting signals and potentials, and trying to assimilate all of them into an overarching market plan is a bit challenging at the moment.

On Friday, just about everything across markets was up:  equities, the Dollar, oil, gold, and bears' blood pressure.  Usually this type of action leads to a move down in equities the next day.

I should mention quickly, in regards to Friday's article and the counts shown therein:

• BKX blew up its preferred count as shown.
• SPX performed within expectation of the bullish ST count, and within acceptable tolerance of the bearish count.
• Dow performed as anticipated.

So, as I see it now, there are 3 main possibilities still on the table.  We'll discuss those, and some of the pros and cons of each.  First, let's take a look at the potentials. 

The first chart is the big picture SPX chart.  For the majority of February, I was favoring the red count on this chart.  At the last minute, some of the action and short-term patterns caused me to ever-so-slightly shift my preference to the gray count.  I may have been a bit premature, and probably should have waited for the short-term patterns to resolve before shifting my preference.  To be determined.

The three main possibilities are all shown on this next charts, as follows:

1. Wave (iv) is complete, and the market is now heading to new highs in wave (v).
2. Wave (iv) is partially complete, and there is another leg down to come before the market heads to new highs.
3. Wave (c) is entirely complete, meaning wave (iv) already happened and the 1378 print high will remain as the high for an intermediate trend change (shown in gray).

Zooming in a bit, and ignoring the gray (c) wave for a moment, the two likely wave (iv) counts are depicted below.

Of course, the SPX never tells the whole story, so let's look at some other charts.

One of the supporting cast members which could create problems for equities is the US Dollar, which looks like it may have put in an intermediate base at 78.  Over the past couple weeks, I've talked about the red trade trigger and corresponding target of 85-87 for the USD -- if it maintained closes above the red breakout level.  On Friday, the dollar hit this trigger level and put in a massive bounce.  Apparently, I'm not the only person watching that level.

If the dollar has put in a base, the action there is likely to put a cap on the equities rally -- so that tends to favor the gray count; or the idea that wave (v) won't be as large as expected.  Of course, whether the dollar holds this action remains to be seen.  Bernanke could emerge from his cave tomorrow and announce that the Fed is planning on selling sheets of uncut hundred dollar bills, intended for use as house insulation, for 89 cents apiece at Home Depot. 

They remain the fly in the ointment -- and if the Fed wants higher equities and a lower dollar, then they have lots of "tools" at their disposal, not the least of which is Bernanke himself.  It remains to be seen how the Once-In-a-Lifetime Greek Credit Event! going on right now at your local Greece dealer, will impact Bernanke's plans to annihilate our currency.

So the dollar charts look bullish for the moment, but I remain deeply distrustful of the Fed.  Probably exactly the type of sentiment the dollar needs to stay bullish.  We can go round and round with this reasoning -- which is the main reason I try to stick to the charts -- but in this world, the central banks are by far the biggest players, dwarfing even institutional investors, so ignore them at your peril. 

That's an awfully sad commentary on the state of things, by the way.

Anyway, back to the charts. 

The next chart is the Dow Industrials, and this is another chart that may argue for a less bullish long-term outcome.  This chart also creates at least a slight problem for the more bearish wave (iv) count (the green count in the 2nd SPX chart).  A material break of the uptrend since October would also break the rising wedge.  This suggests that the green wave (iv) count is probably less likely. 

Additionally, the short term Dow count of the recent rally still looks corrective to me, even after Friday's action. 

It looks more bullish on the SPX, but it's not unheard of for zigzags to look impulsive.  Below is the bullish way to count the SPX rally. 

I do still expect lower prices on Monday for either count.   Obviously, however, the market reserves the right to do the unexpected.  Below is a chart of the very short-term support and resistance levels for SPX.

Next is a chart I showed over the weekend, which highlights two promising trade triggers and an interesting "return to the scene of the crime."  This is quite common to see after a sustained trend: the break and subsequent back-test of the old trend line.  This chart looks near-term bearish to me, because the market basically stated that, as of Friday anyway, it has no interest in returning to the old trend.

Here are the trade triggers zoomed in a bit, so the levels are easier to see:

To summarize, over the very short term, I'm anticipating Monday will see lower prices.

Here are some other key points:

• Trade above 1378.04 will eliminate the most bearish possibility that (c) is complete -- and trade at that level would also already have the market into the zone where the 1408 target is active.
• The dollar looks bullish.  If it remains so, this suggests that upside for equities may be limited.
• The alternate wave (iv) count (green count) would complete a bearish rising wedge pattern on the Dow, and cause a break of the larger uptrend since October.  This makes that count somewhat less likely, in my opinion.  If I gave zero consideration to the Dow chart, I would say a 3-3-5 flat (in SPX; the Dow hasn't retraced deeply enough to qualify) might be playing out (the green count).

There are some nice trade triggers developing in SPX -- and these trade triggers should give some good clues about which count is playing out.  We may have a few more sessions of no-man's land first, though, especially if the preferred short term count is correct and the market heads down into 1353-1362.  There's now a big no-man's-land range between 1340 and 1378 that the market can race up and down in for a while if it wants to.  Trade safe.

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

SPX, BKX, and Dow Updates: Market Potentially at a Major Pivot

As I said yesterday: the market's not doing anyone any favors right now.  After playing around with a number of indices, the short term waves can be counted pretty much however you want.  The market is in something of a no-man's land right now.  I finally just handed the chart to Johnny and asked him what he could make of this (see below).

This is one of those times it would be really nice to have some more info from the market before attempting to make a solid call. 

Tomorrow is a non-farm payroll day, and 8 of the last 9 NFP days have been red.  The market also has a tendency to reverse from whatever direction its heading when the report comes out.  So bears probably want it to be heading higher when the report is released.  Bulls want it to be heading lower.  And Leon's getting laaaaaarger.

Of those 8 recent red NFP days, 50% of them have marked fairly large turns lower.  Also of note, Dr. Seuss's favorite chart ("One Rectangle, Two Rectangle, Red Rectangle, Blue Rectangle") is still within the potential blue rectangle turn window.  Some readers may remember this chart from way back on Sunday:

I remain barely in favor of the market having made a turn at 1378.  But any trade above that high would make a run into the 1400's almost a given.

I took a crack at a lot of charts tonight, and want to lead off with the Dow chart, because it does provide a cleaner possible way to count the rally of the last couple days as an a-b-c.  The SPX chart which I'll share after that... not so much.  What happens today/Monday should be hugely helpful in sorting out the larger counts.

In a moment I'll explain why I remain slighly in favor of the more bearish count, which is still almost a coin toss, in my opinion.

So why do I remain slightly in favor of the bear count?  Well, in part it hinges on the BKX charts. But even those aren't clear-cut -- because the BKX bearish count in turn hinges on the idea of a failed wave (v) of 5.  If the price high is the actual high for wave 5, then the decline was a clear a-b-c correction.  If the failed fifth is correct, then the decline is a clear impulse.  It's a tough call; see for yourself.  Here are the charts for BKX. 

The short term chart (first) shows a clean 5-wave decline.  The question is whether it's wave 1 (or a) or wave c of 4.  The second chart shows why I think it's 1 (or a).

As can also be seen in the big picture BKX chart, another decline leg could still unfold before the rally resumes (gray "alt: (iv)" label).  That might be a good option to help the market screw everyone.

Next, the SPX leading diagonal count from yeterday.  The short-term labeling shown here feels like a stretch.  If this count is playing out, the wave labeled iv could also be wave a.  The potential ending diagonal highlighted (converging blue lines at the top of yesterday's move) does look like it needs another small wave up to complete.

The next SPX chart (below) shows the more bullish labeling.  The good news is that if the market breaks out, there are a number of potential trade triggers in formation, and there should be some decent money to be made on the long side.  The other good news is that the bearish count invalidation level is only 10 points up, so there could be an answer soon.

The chart mentions the island reversal bottom which occurred with yesterday's gap up.

There should be a good trade-able pattern developing if the more bullish count plays out, and I'd recommend taking longs at some point if the bearish count is invalidated.  I'm almost rooting for the bull count, because it should be "easier" money.

In conclusion, the market seems to be at an important pivot.  A break above the recent highs should carry the market into the 1400's, and possibly even into the mid-to-high 1400's.  If the bear count is playing out, there may be an important top under construction.  We should have a clearer answer soon -- and always remember: cash is a position too.  Also keep in mind the NFP info discussed earlier. 

And if you have any questions, just ask Johnny.  Trade safe.

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

SPX Update: Market Not Doing Anyone Any Favors

Yesterday, the preferred count expected a bounce, which we got.  Problem as I'm writing this is that ES futures are up about 9-10 points. 

As I mentioned in the body of the article yesterday, the wave iv target could run all the way up to the gap fill, although in looking back at yesterday's chart, I didn't quite draw the target box to match that statement.  This is another reason it's important to actually read the articles, although the people who just look at the charts will no doubt miss this portion of the article suggesting they read the articles.  Catch 22.

Maybe if I say it really loudly:  HEY YOU FOLKS WHO JUST LOOK AT THE CHARTS, READ THE ABOVE PARAGRAPH.  There.  Certainly made me feel better.

Anyway, if this 9-10 point ES rally sticks, while a big retrace is not outside the realm of possibility for the fourth wave as counted yesterday, it's less likely because it will break the top line of the 1-3 trend channel (not shown).  So today I'm going to lead off with another potential short-term wave count. 

The count below would be yet another head-trip from this market to add yet more confusion to the fire.  Or fuel to the fire, as the case may be -- I guess confusion doesn't burn too well.  "Add more fuel to the confusion fire" sounded dumb though, so I had no choice but to mix metaphors.  Looks like the shoe's on the other hand now!

I really can't blame the people who just look at the charts.

This is an entirely new option shown below.

And here's yesterday's chart, which discusses the short-term invalidation levels, and shows some ST support/resistance zones.

And next, the bigger picture SPX chart, which didn't show the alternate count yesterday, so I've updated it. 

As I talked about at length yesterday, there was nothing in the decline which should lead one to become ultra-bearish.  There are still numerous possibilities on the table, and until the market confirms a larger impulsive structure to the downside, it's entirely possible that there are new highs still coming.

Even with the rally in ES tonight, the odds still favor a new low for this move, for a number of reasons:

1)  It's challenging, though not impossible, to count the decline as a complete wave.
2)  Declines with the level of momentum displayed on Tuesday rarely mark the exact bottom of a move.
3)  Tuesday had very high levels of distribution which, again, rarely marks the exact bottom of a move.

So the odds still favor a new low for the move, and thus a sell-able bounce.  Of course, there are exceptions to every rule -- so these things are merely probabilities, which is all we ever have to work with as traders.  Trade above the 1378 high would negate all downside projections.  Trade safe.

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