SPX and TLT Updates: Bonds Showing Signs of Trouble

Yesterday's update expected more upside, and the S&P 500 (SPX) indeed extended its rally.  I continue to favor the view that the decline completed at 1430, and that the market is headed to 1490-1500 next.  Today has the potential to make or break that view -- this is probably the bears last chance for at least a little while, and they can ill-afford further upside here.

This is the type of market I like, since there are now a number of fairly clear and actionable levels.  The two-minute chart below details those levels; I continue to feel this will end in the bulls' favor, but breaks of the key levels outlined could shift my short-term expectations.  Note yesterday's trip to the top of the black base channel.  If my preferred bullish view is off and bears are instead going to turn things around, this is the zone where they'll do so.

Stepping back just slightly to provide more perspective. 1463 and 1467 are the levels where bears run out of real estate for this wave.

Moving out to the daily chart and the next preferred target zone:

The NYSE Composite (NYA, chart below) is also not showing any real signs of weakness yet...

SPX and NDX: Trend Still Your Friend?

No material change since yesterday.  Yesterday's outlook expected higher prices, which is what happened, and I am still in favor of the view that this consolidation will resolve with new swing highs.  How much higher is a bit up in the air at the moment, so we'll have to play it by ear for now and simply try to keep pointed in the right direction.

As mentioned in prior updates, a break of the S&P 500 (SPX) level of 1430 is required to shift prospects to bearish.

Yesterday's short-term count performed properly, and as mentioned, 1430 remains the key level for bears to get anything started.  Note I have updated the pending bearish sell trigger -- applicable only if bears can claim the falling red trendline.  A 17 point bullish buy trigger has also been added.

The alternate count, depicted in gray above, is detailed on the daily chart below...

SPX and INDU: Bulls Will Stay in Control Unless Bears Take 1430

Last night I studied a great number of charts, and found that there are several markets which are running at cross-currents.  Investors seem a bit confused. 

Because of these cross currents, I'm going to keep today's update fairly simple.  The bottom line is: This is still a pattern that can go either way.  After debating a number of factors, it appears that unless bears can break SPX 1430, the bulls remain in control. 

Two short-term alternate counts for SPX are shown below:

 

The hourly chart of the Dow Jones Industrials (INDU, below) shows my big picture preferred count.

INDU, SPX, TLT

There's been no material change to the big picture outlook discussed on Thursday: the market has left its options open, but appears to be at an inflection point.  Since there's not much to add to that discussion, I'm going to focus primarily on the near-term charts for this update, with the exception of the Dow Jones Industrial (INDU -- below).

INDU looks at the key intermediate levels, and some possible Fibonacci targets.  Bears would need to force a breakdown of critical support in order to start favoring a more bearish intermediate outlook.  This is a tough wave to count, so while the invalidation level for the sub-minuette count is noted, this level wouldn't be a dagger through bulls' hearts. 

The next chart highlights some key near-term levels for the S&P 500 (SPX):

Intermediate Market Prospects Remain Open

So it's "that time" again, when the bears start getting loud -- how the market environment can change in a week!  The bottom line, though, is that nothing's cut-and-dried yet from an intermediate perspective. 

The market hasn't done anything to prove itself one way or the other here, and the long-term counts are simply going to require a bit more clarification from the market.  While many Elliotticians are viewing S&P 500 (SPX) 1426 as the "end-all" to ruin all future bull prospects, 1426 is simply the first warning level, and trade beneath that level would not guarantee a bearish long-term outcome.  The chart below shows why.

Something that remains bothersome to the immediate bear prospects is the fact that RSI and MACD both confirmed the 1474 high, and it's rare for the market to form a long-term peak without some type of divergence forming first -- not impossible of course, but unusual.

While we're at it, let's look at the count which has the bears claiming victory.  The pattern below is called an ending diagonal, and to my knowledge, I was the first to propose it, many months ago.  This pattern can't be confirmed yet, though the whipsaw of the upper trendline is a good start.  In any case, I'm continuing to track it, and am watching the market's behavior before putting all my eggs in one basket.

 
Over the short-term, the prospects for both counts remain viable.  The market has simply not declared its long-term intentions yet, and the first step for bears would be to complete a five-wave impulsive move to the downside.  In order for this to happen, it would take a low toward the (3)/c level, followed by a reasonable bounce and then another new low to begin to consider the decline impulsive, which would suggest a major trend change.

Some key short-term levels with larger-degree implications are noted on the chart below.

Publication Note

Publication will be spotty this week, as, unfortunately, I have a number of more pressing and urgent personal issues to attend to.  I will do my best to get at least one more update published before the end of the week (possibly tonight, with any luck...).  Thank you for your understanding. 

Dow Theory Gives Warning; Can the Fed "Print Over" It?

In this article, I'm going to discuss Dow Theory, the dollar and inflation, and how they relate to the Federal Reserve in today's market.

Dow Theory views directional divergences between the Dow Jones Industrial Average (INDU) and the Dow Jones Transportation Average (TRAN) as important, and the two markets are diverging significantly right now. 

There are six basic tenets behind Dow Theory but, for discussion purposes, the one we'll focus on today is the tenet that the market averages must confirm each other.  As its name suggests, the Dow Jones Industrial Average is concerned primarily with industry, i.e.- the production of goods, while the Transportation Average is more concerned with shipping those goods to market.  The logic behind the theory is fairly simple:  If the economy is improving, then economic production should be increasing (positive for INDU), which also means there will be more goods needing shipment (positive for TRAN).  Logic tells us the reverse should also be true: less production should equal less demand for shipping.  Thus the two averages would seem inexorably linked in an economic sense, and should generally be moving in the same direction.

According to Dow Theory, when the two indices diverge, it's a warning that a trend change may be brewing. 

 
Here's where things get a bit interesting...   

Dow Theory finds its roots in editorials written by Charles Dow, who founded the Wall Street Journal.  He remains a household name with investors because he also co-founded Dow Jones and Company (presumably his co-founder had the last name of "Company."). 

Mr. Dow passed in 1902 and therefore never had to contend with the Federal Reserve, since the Fed wasn't an entity until 1913.  In Dow's day, the gold standard still existed, so money couldn't simply be "spoken into existence" by Mr. Bernanke and his printing press.  Back then, money was viewed, first and foremost, as a way to exchange goods and/or services without the need for direct barter.

In other words, in 1902, wealth could only be created through the archaic concept of production.