SPX, Oil, NDX, CVX, COMPQ: This Round of Easy Money is Probably Over

The market turned into a sloppy mess yesterday, and the preferred count continues to suggest that more upside is likely in the coming sessions.  This leg of the rally has now completed a very nice 3-wave form, which is where the easy money usually ends (with the peak of wave 3 or c -- assuming it has indeed peaked). 

In fact, traders who followed the NDX chart I posted waaaaay back on Wednesday captured an easy, draw-down free, 50 points of profit ($1000 per NQ contract).  Here's the updated chart, which I really like for the clarity of its waves:

In looking at the chart, one can see why I consider third waves to be "easy" money.  I could be cute here and do a Three Things I Like About Third Waves:

1.  There is usually limited drawdown in a third wave (sometimes zero, such as in this example).
2.  The targets are usually pretty clear, and are usually hit.
3.  The end of the third wave is where the possibility of a c-wave comes in -- meaning there might not be any more upside (or downside).  Personally, I don't like banking on fifth waves, partly because fourth waves are usually the Ultimate Trading Nightmare (almost always loaded with whipsaws).

But I hate cutsie stuff, so I won't do that Three Things About Third Waves gig. (?)

What makes third waves challenging for some traders, especially the inexperienced, is that third waves virtually always require you to buy when the prevailing sentiment is bearish, or sell when the prevailing sentiment is bullish.  There is a lot of fear at the beginning of a third wave up; and a lot of euphoria at the beginning of a third wave down.  Some traders have trouble taking action against that, because the majority will always be on the wrong side of the trade, strongly doubting the move and telling you to either sell it or buy it (whichever is wrong; depending on which way it's going).  Ironically, that's what gives third waves their strength.

This is also why I'm watching this market carefully here, for signs of what's bullish and bearish.  The next wave will likely be a third wave (due to the market's position, it will be a third wave up or a third wave down), but a much larger third wave -- and we don't want to get caught on the wrong side of it.

In any case, I consider third waves my bread and butter, and I strongly suggest learning how to recognize and trade them.

Going back to the charts: what long-term bears do not want to see immediately here is a top.  A top from this level would almost certainly indicate that the recent wave up was wave b of an expanded flat, which would mean a solid decline (nice for short-term traders), then a much bigger rally.  I've outlined this as the second alternate count, in green on the intermediate SPX chart (below).  I don't view that option as terribly likely here, but one never knows -- and it would make for the ultimate head-fake to both bulls and bears...

The SPX short-term chart is below.  Where to place the top of the current (3) (if it's topped) is more than a bit ambiguous on the 1-minute chart, so I just keyed off the NDX and went with the price high.

CVX has developed an interesting pattern, and it's one of those patterns that makes you just want to turn the chart upside down and throw darts at it.  It's either an abc up, or an abc down.  Both patterns suggest a very strong move is brewing, but it won't be 100% clear which way it's headed until after it starts breaking.

Oil also suggests some more upside is probably due:

And the Nasdaq Composite also suggests another leg up due... barring the 2nd alternate, of course. 

If and after we get that next rally leg, then that will be where we find out who's for real. I'm largely expecting the market will head up toward the preferred count target zone, then it will probably retrace back toward the breakout level. What happens from there will be critical to both bulls and bears. A solid whipsaw will indicate the bear count is probably on the way... but a successful back-test will mean a powerful rally coming.  The good news is: along with both options comes the next round of "easy" money.  Trade safe.

SPX and RUT Updates: A Discussion of the Intermediate Bullish Potentials

One of the worst fears of any analyst or broker is turning bullish right at the top, or turning bearish right at the bottom.  Believe me, just the thought of it gives all of us nightmares, and causes us to awaken in a cold sweat, screaming like we were Jim Cramer.  So before we go further, let me state for the record that I am not turning bullish -- yet.  However, the charts are starting to display a number of potentially bullish breakouts that simply shouldn't be ignored.

Now, the rally has played out more or less as I've been expecting for the past month and thus clearly still fits the criteria of the intermediate bear view.  It would be silly of me to suddenly turn bullish here, when the market has done essentially what I thought it would.  But, as I've said before, the reality of the market is all about potentials and probabilities.  And the reality of analysis is that the charts only allow us to see a certain distance down the road.  In any case, the potential is simple:  if the bears can't make a stand where they need to, then this becomes an extremely bullish pattern.

The alternate bearish short-term count was invalidated yesterday (and, thankfully, so was the triangle!) -- so this leaves the preferred count as, effectively, the bears' last (decent probability) hope.  The preferred count has been anticipating a rally up toward the 1390's, and that appears to be unfolding.  What happens over the next few weeks is very likely going to determine direction for many months to come. 

If the bears make a stand in the near future, then an ugly decline awaits.  If they don't, then it's off to the races. 

It's currently unlikely that there's an "in-between" option, but as always, the market reserves the right to alter that outlook.

If the decline shows up, then bulls will come up with reasons to buy into it the whole way down.  Conversely, if the rally shows up, then bears will keep pointing to something ugly (and there's lots of ugly!) and short into the teeth of it the whole way up.  I don't wish to be either one of those traders, and neither do you.  So let's stay aware of the potentials, see what happens next, and then try to profit from it. 

The first chart I'd like to share is interesting, and seems to cast some doubt on the current rally, while at the same time casting some doubt on the bear view.  What should give the bulls pause is the narrowness of the rally: it currently isn't broad-based at all.  What should give the bears pause are the numerous markets either breaking out from bullish basing patterns, or about to do so.

(To bring up the full-size chart, right click and select "Open in New Window")

   

The second chart is the SPX daily, and shows the market again bouncing along the underside of the median channel line.  Sustained trade above that line would be intermediate-term bullish.

In this hourly chart, I have labeled the alternate bullish view.  Going all the way back to when the market topped in March, I noted (at the time) the apparent three-wave rally that capped the top, and it has bothered me ever since -- at least, from the standpoint of the intermediate bear view.  A three-wave rally leading to a top is almost always indicitive of a corrective decline (in other words, a counter-trend decline).  There are ways around it, but it's still there in the charts...

I have also labeled the 15 minute chart with the alternate bullish count.  Note there is an interesting pattern that's formed here, and it provides what may be a critical clue -- it can be seen with the labels on the recent move: 1-2-3-4, and black i-ii.  This is a third wave rally under any interpretation -- either C or (3) -- and if it's the bullish (3), then the third wave of the third wave should not be dying like this.  In other words, the sub-minuette first wave (blue 1) probably shouldn't be longer than blue 3.  The bullish i-ii nest (in black) would explain it -- the chart annotation at the bottom details this.

Finally, a simple short-term RUT chart that contains a note about the recent form of the rally and a trade trigger.

In conclusion, the market has behaved largely as expected for the past month, so there's no reason for me to suddenly abandon the bear case here.  But at the same time, I think we have to stay aware of the possibility that, with just a few shifts in the market, the tide could turn strongly in the bulls' favor.  Trade safe.

SPX and NDX Update: Market Set Up for a Good-Sized Move

Yesterday's outlook came within 1.68 points of being "perfect," but missed the morning target by, well, 1.68 points.  The remainder of the day couldn't have played out any better, though.  A picture is worth a thousand words, as they say, so below is just a quick look at yesterday's projected market path.  In reality, the market rallied up to 1361.32 (1.68 short of my first target), then reversed back down to support at 1345 (as suggested), then rallied right back up to resistance at 1365.  Certainly a number of traders on both sides of the trade got burned by the double-whipsaw, but they could have saved themselves a lot of anguish (and probably money) ahead of time by simply studying the chart I published yesterday (yesterday's chart below):

(For new readers, do keep in mind that my projections are never intended to be time-accurate -- I only project price, and then I simply work within the available space to try and keep things legible.)

Certainly every day doesn't play out as perfectly as this, but over the past couple weeks, many of the short-term projections have played out this well.

So where are we now?

Well, the market has provided what is, in my view, a glimpse into the potential for a solid directional move.  It has set up a bullish and bearish trigger point, and whoever claims their key levels first should gain a decent victory. 

The bulls, quite simply, need to break out solidly from the 1367ish resistance zone.  If they can do that, there are good odds of a run into the 1390s or even the 1400s.

The bears need to reclaim 1345.  If they can do that, then that would break the up-facing wave which launched during yesterday's session, and the market should be cleared for a run down to at least 1320.

Using the Nasdaq 100 (NDX), I'd also like to share why it appears that the move up is either the start of something larger and bullish, or the end of it.  The key level bulls need to hold on NDX is 2554.

The SPX 15 minute chart highlights some bullish and bearish trade triggers.  If the bull count is unfolding, a retrace to roughly the S1 area would be reasonable.  If the bear count is unfolding, the top is probably in (or very close).

The SPX big picture view (below) currently highlights the bullish short-term targets -- contingent of course on the bulls breaking out here.

Yesterday, I talked about the potential of a triangle forming in the Dow Jones Industrials.  Until the bulls overtake the SPX 1374 high, this triangle remains possible.  In a triangle, each wave is usually formed by an a-b-c correction.  A very common relationship in Elliott Wave is the relationship where wave c is equal in length to wave a.  So, with that knowledge, look what happens on the SPX chart (below) if we extrapolate that common relationship... we end up with a perfect symmetrical triangle. 

Nobody likes ambiguity, least of all me (it always means I have to draw extra charts), but unfortunately, the market is often a place of great ambiguity.  It often pays to be aware of the potentials that aren't really black and white, and not get become limited by only thinking "inside the box."

In conclusion, the bulls appear to have the upper hand, but aren't quite in the clear yet.  The market is sitting just under key resistance, and bulls need to make a clean breakout to keep their short-term hopes alive.  If the bears are going to make a stand and turn things back down, this is where they'll do it.  The good news is that what happens over the next few sessions should clearly point the way for the market's next decent move.  Trade safe.

SPX and INDU Updates: Current Market Snapshot Allows a Bullish Potential, at Least for the Moment...

Monday's market appeared to consolidate into a small triangle, and this type of action is usually suggestive of follow through still to come.  Short-term, there's a reasonable chance that the S&P 500 (SPX) will rally up to test the 1363-1367 resistance zone, and this lines up well with the potential target for a (small scale) triangle breakout.

There is an interesting, and very bullish, big picture potential that has developed, and I don't think it's something that should be ignored.  One of the reasons I've remained in favor of this rally ultimately resolving with lower prices has been the corrective appearance of the waveform.  In Elliott Wave Theory, corrective waves move counter to the direction of the larger trend, and thus a corrective rally usually suggests the trend is down.  However, in an Elliott Wave triangle, all waves, both up and down, are corrective.  A true Elliott Wave triangle is different from a market move that is "triangular in appearance" -- and an Elliott triangle is always a continuation pattern.

The market has now opened up the possibility that the rally is part of a large Elliott triangle.  This would allow it to be corrective without being counter-trend.  This potential presents best on the Dow Jones Industrial Average (INDU), shown below.  I am going to keep this as an alternate count for the time being, but I believe this potential needs to be watched carefully going forward -- because there are a lot of points to be captured by trading it correctly, if this is indeed the market's intention.

Trade beneath the blue (C) wave low would help rule this out -- but it would not completely rule it out because the (C) wave low has not yet been established as absolute.  At present, trade beneath the (A) wave low would completely rule this out.  In the meantime, the short-term wave structures will provide more clues and absolutes as they unfold.  Depending on what the market does next, this option could disappear in a few sessions -- but right at this exact snapshot moment, this option is fully on the market's table.  It appears lower probability, but it would be less-than-intelligent to completely ignore the potential at this time.

Note that this chart suggests a different outcome, both short and long term, than the double zigzag (or double three) correction does.  This is an alternate count, and if the double-zigzag I've suggested as the higher probability count plays out properly, we should have some success in eliminating this option entirely.

In any case, I feel obligated to point it out, since it's there in the charts right now.

The INDU 15-minute chart helps show why there are now several options on the table: the market's done nothing but trade sideways in a tight range for about a month.

The SPX 5-minute chart is suggestive of higher prices over the short-term, but can be traded either way, depending on how it breaks.  Based on the smallest subwaves, it is not entirely clear whether this is a true Elliott triangle, however, if the market breaks upwards, the short-term breakout target lines up well with more significant resistance (as seen on the next chart).  Note that the triangle could still be under formation, and another up/down sequence  within the red trendlines would still fit the pattern. 

The SPX hourly chart shows the 1363-1367 resistance zone is of some significance.  It bears reminding that 1363 is the 61.8% retrace of the larger down-leg.

Little has changed on the 15-minute chart.  Monday's market found support right at my S1 level.

In conclusion, the short-term suggests higher prices, but can be traded whichever way it breaks.  The big picture option that has now taken shape bears careful watching over the coming days and weeks... but for the time being, this new big picture option remains a lower-probability alternate count.  Trade safe.

SPX and RUT Updates: A Warning about Range-Bound Markets

In Friday's analysis, I showed a bullish and bearish option on the 15-minute chart -- with the bullish option having found a bottom at SPX 1325 -- and I expressed my opinion that the bears still needed another swing low in order to take control of the market.  It appears they won't get it, at least not immediately.

The 1-minute SPX chart I projected on Friday suggested higher prices were due fairly directly, and I cited a 14 point bullish trade trigger which would become active with trade above 1339.  The trigger was activated early in the session, and the 1353 target was easily reached and bested.  The market appeared strong and has already retraced roughly 2/3 of the entire decline, in only 1/3 the time taken by the decline. 

On Thursday and Friday, the bulls literally reversed the market with barely a handful of points to spare (the Dow Jones Industrials came within a mere 42 points of completely invalidating the bull option -- this is what I was referring to when I said bulls were "on thin ice.").  Bears may have to wait a bit in order to regain control, but in a moment I'll cover why this isn't as entirely clear-cut as it may seem, at least not yet.

In certain ways, this market has behaved a bit strangely for some time now.  At the 1374 swing high, momentum was extremely strong, and normally we'd have expected to see a bearish divergence (new price highs and dying momentum) before prices headed markedly lower.  However, the "new normal" seems to be that the market often reverses on a dime with little in the way of the usual divergences.  I can only assume that the deep uncertainty facing the world and the never-ending central bank intervention are both factors in this ongoing (historically) unusual and volatile market behavior.

Let's discuss the market's options from here.

For some time, I'd been favoring the view that the decline was corrective and would lead to new swing highs -- but by Thursday, I began to experience some doubt in the bullish count, largely due to the depth of the retracement.  Normally, a b-wave will not retrace this deeply (as seen on the INDU anyway) unless it's part of a flat correction.  In fact, the INDU retraced more than 90% of the last rally leg, and this suggests the decline, at least in INDU, is part of a flat correction (or a new bearish leg down -- more on this later). 

In any case, a flat correction doesn't work for the second portion of a double-zigzag, because, well, then it wouldn't be a "double" zigzag, since a zigzag and a flat are two different animals.  A zigzag is a sharp correction and a flat is, well, flat.  (See how self-explanatory this stuff is?)

However, there is another Elliott Wave pattern that is very similar in purpose and intention to a double zigzag, called a "double three."  The "purpose and intention" of a double-zigzag or a double-three is to kill time and stretch out a correction longer, and usually higher.  This serves to burn off extreme sentiment levels and shift participants to the wrong side of sentiment -- i.e- to make them either more bullish or more bearish, depending on the direction of the larger trend. 

A double three is any two three-wave corrections strung together by an X-wave (another three-wave move, but in the opposite direction), and in that case, one three can be a zigzag and the other can be any of several different three-wave patterns, including a flat.  All this to say:  I think we have to consider that possibility for INDU, and the target for INDU (under these terms) would be roughly 13,000.  SPX still allows for a double zigzag.

Further, the depth of INDU's retracement does force us, in the interest of prudence, to continue at least considering and allowing for the more immediately bearish possibility as an alternate count.  The S&P 500 did traverse slightly beneath my "ideal" 1333 target, but slight overthrow is not unusual -- and the bullish count again appears to be the higher probability.  The bearish alternate count would be invalidated with any trade above the July swing highs.

This market may actually become more challenging going forward, because it is still trading in a large range, and strange things can and do happen in trading ranges.  In trading ranges, short-time-frame bullish and bearish patterns often take shape and become active, but then fail to reach their targets.  I think traders should remain very nimble until the market breaks out of this range.  I've used the Russell 2000 (RUT) chart to illustrate this.

These types of ranges can be very challenging to trade profitably, and if one doesn't take profits quickly, the ongoing price overlaps can nickel and dime one's account to death.  A range like this suggests the market is coiling and building up potential energy for a large and sustained directional move, to be launched at some point in the future.

Looking at the shorter-term picture, the strength of Friday's rally has seemingly added confidence to the bullish count.  Again however, due to the depth of the prior retrace, we need to continue considering the bearish alternate count, which would see the rebound as part of a three-leg move, as opposed to the beginning of a five-leg move.  The bearish alternate could still see higher highs over the short term, but that count should not break the 1374 swing high. 

Both short-term counts continue to expect new lows for the intermediate term.

On the short term chart, the rally is far more ambiguous than many technicians seem to think -- but, as a whole, appears impulsive.  What gives me pause is that it could still be counted as an ABC (hence the black "or 2" label), and I don't think bulls should get over-confident here.  Assuming the rally is impulsive, it's also a bit ambiguous how much (if any) farther the current leg has to run before correcting -- it could start correcting directly on Monday, in which case a retrace to S1 or S2 would not be unusual... or it could run-on more or less straight to 1390 without much in the way of corrections, much like the move from 1313 to 1374. Given what's available to work with in the charts, I am hesitant to try to outline a short-term path ahead of time for Monday, lest readers put too much faith in it.

The key near-term pivots are outlined.  Further, if bulls can reclaim 1363, there's not much short term resistance until the prior swing highs.  Long-term resistance is still the 2011 high, near 1370.  Conversely, if the bears can sustain trade beneath the key bearish pivot, it will almost certainly spell more immediate trouble for the market.  The market closed Friday right at the key bullish pivot, and it remains to be seen how the market will respond to this level.

There are numerous reasons that, at this moment anyway, I remain highly skeptical in the long-term prospects for this rally, and one of these reasons is shown below.  The up volume to down volume ratio suggests limited commitment from bulls at the recent lows.  I also referenced this same indicator on July 2.  The level of accumulation taking place recently remains historically minimal.

Keep in mind that since this chart represents a volume ratio, it is relative to the total volume of any given day.

In conclusion, I am again marginally in favor of the market forming one more swing high before a sustained directional move, but it's not as clear-cut as I would like -- and I strongly suggest that traders remain nimble and protect profits as long as this market stays range-bound.  Trade safe.

Reprinted by permission, copyright 2012 Minyanville Media, Inc.

SPX, INDU, BKX: Sifting Through the Minutiae

Bears have a real shot at claiming complete control over this market.  Since March, I've stated that I believe bears control the intermediate term, but lately the short term has remained a bit cloudy.  I've sifted through a lot of one minute and five minute charts recently, and I've come to the conclusion that one more swing low will probably put the bears completely in control.  Nowhere is this more evident than in the Dow (INDU).

While SPX is a bit ambiguous, and can be counted as a correction or an ugly impulse, the Dow is almost certainly only a 3-wave decline thus far (a correction).  One more new swing low should do it for the bear case, though, and give the bears the "all-clear" signal that no new highs are coming.  Ideally for the bear case, a new low would be made beneath 12450.

If they can't make a new swing low, it would appear the bulls are still in control.

The Philadelphia Bank Index (BKX) also shows a pattern that's of some interest.  It's interesting because there are two short-term outcomes that are diametrically opposed to each other: the pattern is either basing, or about to drop rapidly (I used the term "crash" on the chart -- I mean that a bit loosely).  But there's not much in the way of an "in-between" here. 

The chart also shows why it's difficult to completely rule out the potential of a new swing high.  If the second ABC is complete, it is entirely out of balance with the first portion of the pattern.

The short-term SPX chart leaves a lot to be desired.  I'm not happy with the labeling on this chart, and I feel like -- if this is an impulse decline -- then something is off on the labeling here.  It works fine for the (a) (b) (c), but it doesn't feel right for the attempted impulse labeling (the 1-2-3-4-5 part).  Maybe that's because it's not impulsive (?).  In any case, I need to see the market's next move to figure out what needs to be tweaked (if anything).

Note that the market is close to reclaiming the blue channel.

I also took a crack at the very short-term SPX chart, and again, I'm not completely thrilled with the labeling.  My best guess is that an expanded flat is playing out.  If the expanded flat is in play, I'd expect a small bounce at the open, then a trip down to 1331-32.  However, the expanded flat isn't confirmed unless the a-wave low is broken -- barring that, it could be a standard flat that completed at Thursday's close.  Either version of a flat suggests higher prices to come.  Several targets are listed, contingent on market trigger points.

The intermediate outlook is unchanged.  The primary lingering question is still whether there will be a new swing high or whether the bulls are out of options.

In conclusion, the bulls are skating the razor's edge right now, and new lows from here will almost certainly shift all the odds firmly into the bears' corner.  If this is the B-wave I've been looking for, it pretty much needs to bottom right here.  Trade safe.

Reprinted by permission, copyright 2012 Minyanville Media, Inc.

SPX and INDU: Bulls on Thin Ice

Yesterday's target of 1333 was hit perfectly, and the market generated a bounce... however, the bounce did not look impulsive -- as of the Wednesday's close, anyway.  This is suggestive that there will be a retest of the low, or perhaps a new low to follow. 

Quite frankly, the bulls are walking on thin ice here.  After reviewing a lot of indices tonight, I'm now equally split on the odds for the bull and bear counts.  There is still a little bit of room for the bull count -- however, the INDU broke down below its rising support line, and the bulls are running out of real estate. 

There are also potential sell triggers lining up across the board.  The invalidation levels are getting close, though I have this irrational fear of this being wave c of a huge expanded flat -- which means it would invalidate the bull count as shown, and then rally up to new highs.  Let's not worry about that yet, though.

 


The SPX chart suggests there may still be a retest and/or new low in the cards, but there are a lot of indications that the market should bounce from within this general vicinity.  The shape of the bounce should tell us a great deal. 

The decline still currently counts better as a 3-wave form, but there are ways to view it bearishly.  Quite frankly, I have a very hard time seeing the most recent leg of the decline (from 1361) as any type of a third wave.  It's been far too mild... thus, if the bears have any hope, they have to see it as either a fifth wave, or another first wave.  It works fine for the bull count, though technically c-waves are also third waves, they aren't always as strong as the true third wave in a larger impulse.

In conclusion, the bull count still has some potential, but bulls will need to pull things together awfully fast at this stage to make it work.  Keep in mind that if a half-way decent bottom (or top) is going to form, it will do it's best to get you on the wrong side of the trade.  Trade safe.