SPX Update: Revenge of the Beard

This market remains a mess, though perhaps some semblance of order is beginning to emerge from the chaos.  Way back on Friday the 13th, I suggested that the market would form some type of "double retracement" due to the extended fifth wave.  What threw me off heading into yesterday was that it looked like we'd already had that double retracement.  Turns out the market felt we needed another retracement just for good measure. 

The market seemingly felt obligated to cheer on good old Uncle Ben yesterday and, no doubt, cries of "Win one for the Beard!" could be heard echoing throughout the halls of Primary Dealers everywhere.

It's vitually impossible to predict this type of market in advance.  To a degree, it can be predicted in real-time... but looking at charts from one day to the next, it's quite difficult to anticipate a correction of this complexity.

The mess at the beginning of the wave makes predicting its resolution somewhat challenging as well.  I'm inclined to believe this is a 3-3-5 expanded flat, as I mentioned yesterday morning.  In that case, it's nearly complete.  It may have a bit more down/up first -- my "perfect world" target would be 1397-1399 for completion -- but it's also possible that it completed yesterday.

There are two counts shown.  The count not shown is represented by the red box -- another repeat of the fractal within the box, to stretch the correction out even farther, is possible.

In the bigger picture, I still favor continued downside after this correction is complete (assuming that ever happens).  The alternate count remains as a possible bottom at 1357.  I view that as unlikely.

Yesterday pre-open, I mentioned that I believed the Euro/USD currency pair was forming an ending diagonal.  I wasn't sure if it was complete, or had one more wave up left in it.  Today, we got that wave up, and the pair has now formed what appears to be a complete textbook ending diagonal.  There should be strong selling in store for Euro over the near term.

This is a particularly good diagonal because that last wave up ran a ton of stops -- I watched it unfold, and actually played it on the long side.  Caught a few quick bucks as a momentum play, then I sold my longs to all the shorts who were covering.  But I imagine a lot of shorts will have to chase now, which should give it some fuel down.

Diagonals can be misleading, and it's still possible that the wave labeled v is actually iii, but in this case, that seems much less likely.

In conclusion, I continue to favor an ultimate downside resolution to this mess.  In a perfect world, this correction may or may not have a tad more upside left, but should be over fairly soon.  Trade safe.

SPX, COMPQ, and INDU Updates: Possible Reconciliation of Counts Across Markets

I've been trying to reconcile the counts across market, and may have found a solution tonight.  Each market gives a bit different appearance, and readers know I've referred back to RUT several times, which argues that the next low (assuming the market makes a new low) will most likely be a fifth wave and lead to a larger rally.  COMPQ seems to suggest the same thing.

A quick look at COMPQ first -- if the wave labeled as blue 4 exceeds the invalidation level, I'll consider switching it to the more bearish count of black 1 and 2.

Next, the INDU, which is much stronger in appearance than most other markets, and is giving the impression of a large triangle.

RUT isn't shown, as I didn't have time to update the chart, but readers can refer back a post or two for why I believe RUT's correction was a fourth wave.

So how to reconcile all these markets with SPX? 

Well, how about an expanding ending diagonal fifth wave?  This seems to fit not only the pattern, but the current patterns and expectations of other markets as well.  As such, this is my preferred count for SPX, shown in blue below.

The more bearish count, currently labeled as the alternate, would view the present decline as a nest of 1's and 2's.  We'll have to see if other markets invalidate their counts -- for example, if INDU invalidates the triangle, then we can seriously consider the mega-bearish 1-2 count.

For contrast, here's how the more bearish possibility would look.  Currently, this doesn't reconcile as well with other markets, but we'll keep watching to see how things unfold.  The appearances could all change tomorrow.  The alternate (iv) count still can't be ruled out, and might end up marking the next low (I view it as quite unlikely that the market's bottomed already -- too much overlap in the wave).

In conclusion, the market still has a few questions to answer to bring more clarity to the structure, but I'm still favoring the idea that new lows will be seen, likely this week.  Further, given what's in the charts at the moment, the ending diagonal currently reconciles all the markets fairly well.  Trade safe.

Morning open update -- not sure how I missed this earlier, but an expanded flat looks quite possible now:



SPX, RUT, COMPQ Updates: Bulls Running Out of Options

As I'm certain some of you read in the comments section, there was a death in my family yesterday, so I'm going to need to keep a bit lighter schedule through the remainder of the week.  My thanks to those of you who have expressed your condolences and kind thoughts.

Despite the challenges of my personal life, it's hard for me to simpy abandon "you guys" (my readers, male and female, of course) during what may well prove to be a key turning point in market history, so I have prepared a few charts and a brief update.  Two of the charts were completed before I got the bad news yesterday, but I also added an SPX chart because I know readers expect/rely on it more than the other indices.

Keeping things fairly brief, it does appear that the preferred count of the prior week is playing out.  There is still the option of another leg up to new highs, but given the strength of yesterday's sell-off, that now appears much less likely. 

The more relevant question appears to be in trying to determine the trend degree of this decline.  Both RUT and COMPQ seem to suggest that the recent rally was, in fact, a fourth wave at lesser degree as opposed to a larger second wave.  The meandering nature of the recent rally is also suggestive of a fourth wave. 

This would suggest that the current decline is the fifth wave of the larger first wave, which should be followed by a decent retracement rally (in wave (ii)), which will probably show more "purpose" than the most recent back and forth retracement rally.  Second waves are generally sharper and faster than fourth waves.

To illustrate why I currently view the recent rally as a fourth wave correction, and this as a fifth wave decline, here's the RUT chart, followed by the Nasdaq Composite.

COMPQ also currently counts best as a fourth wave correction.

For the sake of showing the difference, I've labeled the SPX chart with the rally as wave (ii).  Based on the evidence, I'm far more inclined to view the recent rally as wave 4 and suspect a larger retracement after this wave down is completed.  That is, of course, subject to change as the pattern unfolds more fully.

It's also possible that the current decline is simply wave (1) of 5 and will hit the target zone, bounce and then collapse again.  We'll have to reasesses this as it unfolds.

 

 

In conclusion, the more bullish alternate counts are beginning to appear less and less likely, though a blistering rally tomorrow could always force a re-examination of that view.  However, given what there is to work with in the charts today, new lows seem very likely to show up later in the week.  And, once new lows confirm, the broader message from the market will be that the larger trend appears to have turned -- not that this would be unexpected news to any of us, since we've been largely expecting that result for a while anyway.  Trade safe.

SPX, INDU, NDX Updates: Trying to Make Sense of the Mess

The charts are an absolute disaster right now.  I've looked at roughly 20 million charts this weekend, but there are so many possibilities, it simply becomes confusing to try and cover them all.  This update was a whole lotta work for very little tangible reward.  I looked at everything from NDX and COMPQ to SPX, INDU, BKX, and TRAN -- but there's nothing that jumps out as "this is the one!"

The market keeps us guessing at times, and this is one of those times.  At times like this, it's sometimes better to zero in on other indicators, such as trendlines and so forth.

I think one of the key trendlines right now is visible on a longer-term chart, and it's not too far below the current market.  If that red trendline breaks, the market could start the next big leg down.  If it doesn't break, the market should continue to bounce higher.

As I mentioned, there are literally too many options to list -- so I'm going to present my "best guess" short-term outlook and if it works, it works; if not, so be it.

First off, it does appear that the SPX formed an impulse down on Friday, so I would expect a bounce (which may have ended already, into Friday's close), followed by another impulse down.

Backing out a few degrees, here's what the best-guess counts looks like.  Again, if the market materially breaks the trendline mentioned in the first chart, then all bets are off for the more bullish count.  The bearish option is a very wild flat for wave (2).

The market has never allowed us to rule out the alternate wave (iv) count (meaning the last decline could have marked the bottom of wave (iv)).  The INDU has shown more strength than the other indices of late, and the potential exists that it's forming an ending expanding diagonal fifth (and final) wave.  This option is shown below, and would jive reasonably well with the SPX triple-zigzag bullish count shown above.

The other option, of course is that wave (ii) completed at the recent high.

Interestingly, the NDX looks like the weaker sister, no doubt due to Apple's recent fall from grace.  Unfortunately, this chart presents much the same mess as everything else, though possibly more so.  However, the alternate count in NDX calls for a rally almost immediately there, so what happens Monday should be telling.

It's always possible for NDX to decline while INDU/SPX rally, especially if funds decide to rotate out of tech and into blue chips.

A factor that's always worthy of attention is the upcoming Ben Bernanke Beard Expose, which occurs on Wednesday, though tickets went on sale last week.  Thanks to my new beard, I'm able to get in free as an exhibitor! 

Anyway, at 12:30 on Wednesday, the FOMC announcement takes place, during which Ben will tell us about all the "tools" the Fed has at its disposal -- including hammers, screwdrivers, and their latest addition: a belt sander.  He'll also probably tell us "no QE3 today!"  So maybe that's what the market's waiting on before it starts the next serious leg down.  The more bullish "best guess" count would fit a potential rally into Tuesday/Wednesday, so we shall see.

In conclusion, there's too much clutter in the charts to make a strong call right now.  I've done my best to present what appear to be the "most probable" short-term options, but still could very well be completely off, since I can literally count at least 7 other potentials without really trying.  We're simply going to have to see what happens over the next couple sessions to allow the short-term options to be narrowed down a bit, unless one of the two presented works out. 

In either case, it still appears quite likely that the whole rally is corrective, and should ultimately resolve with lower prices. Trade safe.

SPX Update: Shortest Update Ever

Today's update is going to be very short and sweet, due to time constraints I ran into with some family issues.

There are two reasonable ways to view the most recent action, as shown on the chart below.  The good news for bears is that the rally is almost certainly corrective, and should ultimately resolve with lower prices.

The question is more whether it will do so more directly, or if there's another run-up still left.

Here are the two most fitting ways to count the rally so far:

1.  It is a complete w-x-y double zigzag, and the next wave down has begun.
2.  It is an incomplete double zigzag, and yesterday's action completed the b-wave of said zigzag.

I've marked a few levels to watch on the chart. 

(Editor's note:  There's a typo on this chart -- red "3/c" should read "i/c.")

In any case, it is thus far extremely challenging to count the rally as an impulsive form.  If it's a motive wave, it would have to be counted as either a leading or ending diagonal.  It's very challenging to see it as anything overly constructive to the bull case.

In conclusion, the next wave down may be underway, and that's the interpretation I'm leaning toward -- although just barely.  Part of the reason I'm leaning that way is because the Euro has been rallying all night, and just tagged 1.32075... and I think it's now on the verge of a steep decline.  So I'm factoring that in as the final straw.  It's possible my Euro analysis is wrong, since I lack the market confirmation I need regarding a decline in Euro (no key overlaps yet), and so I may be factoring in something that isn't going to happen!  The equities decline could have been a b-wave, with c-up to come.  The key level for that argument would be 1390.46.  Trade safe.


ADDENDUM:

At the request of a reader, here's a quick breakdown of the correction that came on April 18 and 19.  This is why it can sometimes be challenging to figure out exactly what the market's planning -- it's virtually impossible to predict a wave like this in advance.

SPX, RUT, and CVX Updates: Additional Telling Signs in RUT?

Well, I've got good news and bad news.  The bad news is that the short term structure is an absolute mess.  The good news is: I think I've found the key to figuring it all out over the next few days.

"How?" I can hear you ask incredulously, as you scratch your head in wonder, possibly hard enough that your fingernails remove several layers of your scalp. 

Well, once again, RUT seems to be throwing off some key signals.  Yesterday, RUT overlapped the assumed wave (1), which means that the current wave up in RUT already topped.  Plus RUT is now sporting a pattern that, if it generates another wave up, would look an awful lot like a leading diagonal.  I think the chart below may be our Holy Grail for the next few sessions. 

As goes RUT, so goes the world?

The next chart is the 5-minute SPX chart, which would still look a little better with a new high.  It's also possible wave c of (y) topped.  It's nearly impossible to say, given the short term charts, which look like a child's drawing of a bamboo forest on a really windy day.

It's also time to update CVX.  The original battery of CVX charts can be found in this article from March 18 (Why I Haven't Yet Joined the Long-Term Bull Camp).  CVX also would look better with another wave up, since the decline yesterday appears corrective.  The only thing that bothers me a bit about CVX's chart is the current expected shallowness of the retrace rally.  It would not surprise me to see CVX do something unexpected to deepen the retrace a bit.

Next is the 60-minute CVX chart.  I've noted the possible target a bit differently on this chart.  We'll just need to see what happens over the next session or two.  For now, based on the smallest waves, 104.50 +/- seems like a pretty good target area.

And finally, since there isn't a ton to add to the short-term SPX outlook, here's a big picture count that I've been playing with and tweaking for a while now.  I wanted to share this because I've never seen a count exactly like this floated in public, and I find the possibilities intriguing.

The alternate count for this chart would also move the wave iv bottom to the recent lows.  This would still maintain the ending diagonal form.

In conclusion, there appears to be a little more upside due for SPX -- but that's just a best-guess.  Of note, if RUT makes a new high, I will probably shift everything onto a more bullish intermediate footing (though not necessarily a short-term bullish footing) -- but I will of course need to see how it looks across markets before doing so. 

The upside for traders is that if RUT invalidates the preferred count, and is forming a leading diagonal, there's usually a deep retrace in the first big correction to allow bears to exit and bulls to buy the dip.  However, unless and until that new high happens, the more bearish intermediate count remains preferred.  If the more bearish count is correct, a big decline should unfold soon.  Trade safe.

SPX, RUT, and INDU Update: Trying to Reconcile the Contradictions...

Yesterday's alternate count came to pass, and hopefully readers heeded my warning regarding the red trendline and protected profits.  There are certain things I take for granted as "common knowledge" and I sometimes fail to expand upon certain statements for that reason.  It was brought to my attention that the following annotated chart might be helpful to some readers.

When I make statements like one made yesterday: "watch the red trendline for clues" -- this is the type of watching I'm talking about.

The chart also contains the updated count, though I'm now on the fence as to whether it's wave 4-up or wave (ii)-up (see Dow chart) -- but it's largely irrelevant at this stage.  More relevant is the fact that it's possible that ALL OF wave (y) completed yesterday, due to certain things I'm seeing in other indices (such as the Dow Industrials).  Yesterday's target was 1393 -- it's possible that 1392.76 was close enough.

There is a bit of confict among indices.  I've previously mentioned the RUT and how it doesn't count well as a complete five-wave move down.  Here's that chart again, along with the updated count. 

So the RUT appears to be in a fourth wave correction (or starting a new leg of the rally). 

Contradicting the fourth wave interpretation is the Dow, which does count best as a complete five-wave move down.  If the current rally remains as a corrective 3-wave move, then that makes the rally a larger second wave up.  Which means, if that interpretation is correct, then a big sell-off should follow in the third wave down.

Basically, the big challenge now isn't about whether the rally is a fourth wave or a second wave -- because both of those lead to lower prices.  The big challenge is whether it's a corrective wave (of some variety) or the start of wave (v) up.  The knockout level for the corrective rally (which ultimately leads to new lows) is the previous yearly high. 

It's not really possible to definitively sort one count from the other at this stage, because the rally has formed only 3-waves up so far.  So it could be a-b-c (or w-x-y), or these could be the first 3-waves of a new impulse up.

I'm continuing to favor the more bearish count by a slim margin for the time being, largely because the first portion of the rally in SPX counts much better as a 3-wave rally, which suggests that the entire rally is corrective.

But here's one thing that can't help but bother me:  the conundrum between the RUT and Dow can be resolved -- if one counts the RUT as a 4th wave (an a-b-c) down.  So the counts all work together just fine and dandy if we count the decline as a fourth wave with wave five up still to come. 

Now, this isn't to say that they don't work when counting them more bearishly -- if they didn't, I would throw the bearish count out.  But it's a little cleaner factoring everything together if we count the decline as a correction. 

So maybe that's the answer -- but I'm not ready to see it?  Maybe you are -- I'll leave it to the reader to decide.

The market rarely makes this easy.

I've marked a number of levels to watch on the various indices which should give us some clues.  Basically, if this is a corrective rally, it needs to remain as a 3-wave form.  Overlap at certain levels would help to guarantee that.

In conclusion, there's nothing in the charts right now to rule out either count, and both remain quite viable.  Based on the current overall appearance of the structure, it looks pretty good and counts very well as a corrective rally with new lows to follow.  I remain in favor of this interpretation for that reason. 

If that's correct, and this is a 2nd wave rally, then the market should be on the verge of a strong sell-off.

Conversely, and running in complete opposition, the more bullish count would have the market on the verge of a strong rally (since it would view the rally as a nest of 1's and 2's).  Preliminary targets for the rally interpretation would be in the SPX 1450-1470 range. 

The one thing that seems fairly certain is there's a strong move coming soon enough, one way or another.  We should be able to sort those two options out over the next few sessions, by keeping an eye on the key levels. Trade safe.