SPX, INDU, NDX, NYA: Charts Show Fractured Markets

Last week the market gave several buy signals, but Friday's action aborted some of those signals.  Hourly MACD on the S&P 500 (SPX) flipped to a sell signal, and several markets formed very bearish reversal candles.    

The good news is my short-term target from Wednesday (of 1430-1432) was reached before the market reversed, capturing 20 SPX points of profit.  The bad news is the intermediate-term outlook has been clouded by the strength of Friday's reversal, and bulls will need to reverse the market directly to maintain their hopes.  Trade below 1403 SPX would suspend the potential intermediate turn I talked about in Friday's article.

The chart below outlines the three viable wave potentials from here.  The reality is: at this point, if the market crosses back below 1403, that will tell us more about what this wave structure isn't than about what it is.  As noted, trade below 1403 would invalidate the wave (4) bottom and open up the possibility that this decline could have much further left to run -- though it's difficult at this point to say exactly how much farther.  The old expression "the trend is your friend" would be wise to keep in mind if this happens, as trade beneath 1403 would indicate the intermediate trend is still down.

The wave count discussed on Friday of a fourth wave bottom at 1403 is still the best fit to the entire structure, so if bulls can hold 1403, they give themselves a fighting chance at making new swing highs directly.  Trade above 1423.62 is the first short-term step for bulls to start feeling good again, and trade back above 1434 would be a confidence booster.

On the bearish side of the coin, the SPX trendline chart notes a potentially dangerous pattern for bulls if the market sustains trade beneath the 1395 zone.  Trade into that price zone would also break the long-term uptrend line of the past year.

The Nasdaq 100 (NDX) currently presents one of the more bearish-looking long-term charts out there (below), and muddies the overall outlook. (continued, next page)

SPX Update: Intermediate Low in Place?

In Wednesday's update, I noted that the market had likely put in a bottom at 1403 SPX, and I suggested a rally would begin to unfold.  I also published a short-term rally target of 1430-1432 for the S&P 500 (SPX), and on Thursday, the market came within 1.65 of my target. The bulls have taken the first steps toward validating an intermediate bottom, but there is still some work to do before we can declare the bears out-of-the-running.

My work suggests that an intermediate low is in place, and the market is now headed toward the (first) intermediate target of 1480-1490, but any trade beneath 1403 would invalidate that outlook.  The first step for bulls to gain confidence is to overlap the key 1430.64 price point.  Conversely, over the short-term, sustained trade beneath 1416 could suggest problems for the bull case.

The hourly chart notes the alternate potential of a 2nd wave rally, though I'm only giving that potential 30% odds at the moment.  I'll note the key downside levels going forward.

The 5-minute chart anticipated the rally perfectly, and Friday's market looks destined to hit the 1st-tier 1430-1432 target which was published on Wednesday -- when my blue target box looked a lot more lonely than it does now.  Considerably more upside is possible, and if the high-degree preferred wave count is correct, the market is on its way to 1480-1490 at the minimum. (continued, next page)

SPX Update: This is Still the Bulls' Battle to Lose

Before I get into the market update, my heart goes out to all those impacted by the super-storm on the East Coast.  Those affected are in my thoughts and prayers, and I wish you all the best in recovering.

Despite two days of storm-related market closures, there's been no material change in the outlook since Friday.  It is still anticipated that the market is likely to find a bottom in this zone and head toward 1480 -- though if for some reason it doesn't, then things could get very bearish.  

The S&P 500 (SPX) chart below outlines the preferred path, as well as the short-term (ST) alternate path (which allows the margin-of-error of a marginal new low), and the intermediate-term (IT) alternate path (which allows for a major trend change at 1474).  It's obviously too early to confirm a bottom here, especially since the short-term trend is still down -- so we'll watch how it unfolds going forward.  (continued, next page)

SPX, INDU: Bulls Need to Find Support Soon

I'm going to use an analogy I've used before, because I believe the current market fits:  The market is like a rubber band stretched to its breaking point -- either it will snap back and begin a strong rally over the next few sessions (quite possibly as soon as today's session) or it could break.

As we look at the options, it's important to remember that QE-Infinity hasn't actually started yet.  Some bears are calling QE-Infinity a "failure," and even the mainstream media (who should know better) has been guilty of this.  The effects of the QE MBS (Mortgage-Backed Securities) purchases won't be seen until the Fed cash actually makes its way into the Primary Dealer accounts -- there was no liquidity flood released when the media announcement happened.  And no liquidity added even once the first purchases were made, as MBS settlements are done on a forward basis.  The first MBS purchases aren't scheduled to settle until November 14, so that's roughly when we'll finally begin seeing the "real" effects of QE-Infinity, which is anticipated to be inflationary (i.e.- rising equities and commodities prices).  

The old adage of "don't fight the Fed" sticks in my mind going forward.

Yesterday's preferred short-term count played perfectly, as the market rallied up to my wave 4 label and reversed immediately to a new low.  So, the short-term count was correct -- but what about the intermediate-term counts? 


The predictive power behind Elliott Wave analysis is underpinned by two key strategies:

1.  Using the available price action to attempt to anticipate the pattern that will unfold going forward.
2.  Understanding the key levels where that anticipated pattern becomes invalidated and mutates into something else.

This is why I usually give both a preferred and alternate count.  The preferred count is "here's what looks most likely, given the price pattern that's currently visible"; the alternate count is the "okay, that fell apart, so this might be unfolding instead."

This task can be quite difficult in certain markets, because some patterns start off looking like a specific high-probability pattern, but then turn into something else entirely.  This happened near the recent peak.  The Dow Industrials (INDU) in particular looked like a nice clean pattern called an "expanded flat," but then went on to mutate into something much more extended.  The upshot of Elliott Wave, even during such predictive failures, is that it does provide clear levels where we can recognize that the first predicted pattern was wrong -- and sometimes the short-term work can still get you a winning trade even when the larger pattern fails.

To stick with the example of INDU, on October 19, I suggested it was due a correction to roughly the 13400 zone -- and also noted that "sustained trade beneath 13398 would open up more bearish intermediate prospects."  Even though the larger pattern failed, Elliott Wave allowed the patient trader to locate a low-risk entry-point, and further allowed the patient and nimble trader to bailout with minimum damage when the trade didn't work (as we know, patience isn't the only skill required of successful traders).  A really nimble trader could even have played the decline on the short-side and made a profit along the way. As an aside, this drives home a big part of what trading is all about: managing risk.

So, here we are in today's market -- trying to put the puzzles pieces together into a "most likely scenario," while at the same time looking for key levels that will suggest the preferred scenario is failing and "something else is going on."  I realize things can get a bit confusing to readers at times, because I'm working on several different time frames, and sometimes the five-minute (or one-minute) chart looks crystal-clear, while the daily or hourly is more of a toss-up, or vice-versa.  As best I can, I try to fit them together into something readers can understand.

And sometimes, it seems like detailing the alternate prospects is a ridiculously-complicated task which will only confuse everyone -- and to some degree this market fits that bill.  During these times, I try to note a few key levels where it's time to capitulate or reverse position.

There's been zero change in the INDU preferred count -- in fact, this count performed perfectly yesterday, accurately predicting the pop and drop reversal to within a few points.  The $64,000 question is whether we should anticipate the blue "4?" rally and reversal.  Hopefully, we'll be able to determine whether that's probable as the action unfolds.

The alternate intermediate count that isn't shown is morbidly bearish -- so if the market markedly fails target support, then bulls who didn't heed my Monday warning might want to consider that failure as a second chance at taking a vacation.

For SPX wave counts, I'm only going to focus on the daily chart today, since the questions and potential outcomes are essentially the same as for INDU. (continued, next page)

SPX, NDX, INDU, VIX: Signals Suggest a Bounce is Due

There's not much to add to yesterday's update, so I'll simply let the charts do most of the talking.  The first chart worth noting is the Volatility Index (VIX), also known as the "Fear Index" since it substitutes as a good indicator for investor sentiment (high VIX means investors are fearful; low VIX means complacency).  VIX has closed outside its upper Bollinger band the last two days in a row .  This is often the precursor to at least a short-term rally in equities.

Next is the S&P 500 (SPX) daily chart.  As yet, still no material change here. 

The SPX hourly chart is showing some early bullish signals in RSI and MACD.

The Dow Jones Industrials (INDU) probably still needs at least one more fourth wave rally and fifth wave decline -- though yesterday's little rally and decline could theoretically qualify, which would mean the decline is complete.  The strength of any forthcoming rally should narrow the options. (continued, next page)

SPX, INDU, NYA, RUT: Market Wants a Debate

In keeping with the spirit of election season, the bears have decided it's time to open a debate.

On Tuesday, bears broke the market down through some key trendlines in several markets.  The analytical challenge I'm running into remains the same as mentioned last update: there are a lot of mixed messages being conveyed by different markets, and it's difficult to find a pattern that holds across all of them.

The one market that has largely convinced me that higher prices are still ultimately coming is the Dow Jones Industrial Average (INDU).  I can't get past the three-wave rally into the new high, which suggests the final high isn't in yet -- and this is a pattern I've learned to never ignore.  It doesn't work 100% of the time -- nothing does -- but it does work the vast majority of the time.  The main question has become how deep the correction will run, and as I suggested on Monday, wise bulls probably wanted to get out of the way once that lower red trendline broke.

I can now count five clean waves down into the recent low.  Where I'm most unsure is whether those five waves form wave 3 of c, or ALL OF wave c.  On the chart below, I've drawn-in the potential for wave 3 of c, with a fourth and fifth wave still to come -- but there really isn't a clear answer. 

An interesting fractal study I want to share is General Electric's (GE) pattern of March-June 2012 in comparison to the current S&P 500 (SPX).

SPX below.  The beginning of the structure looks remarkably similar to GE, but they diverged recently, as SPX has materially exceeded the lower support line -- and has done so on a confirming MACD reading.  This is the signature of a third wave decline (c-waves are third waves), the question for SPX is the same as INDU -- whether this is ALL OF (c) or whether there is a correction to come, followed by new lows.

The simple SPX chart below still outlines the key intermediate pivots (continued, next page).

SPX, BKX, RUT, VIX, TRAN, NYA, IBM: Market Refuses to Leave the Intermediate Chop Zone

Last update expected that the market was due to turn lower for at least a minor top, and turn lower it did -- however it moved a bit lower than expected, and this has now thrown the intermediate outlook back into the ambiguous zone.  This weekend, I've charted more markets than I can count, and wrestled with what to present to readers to try and keep the whole thing reasonably understandable.  I finally decided to boil it all down to a simple chart of the S&P 500 (SPX) to avoid confusion.  Don't worry, there are plenty more charts coming in this update, but I think it's easiest for readers to focus on the simple message in this chart:

The bottom line is: this is still the intermediate "chop zone" and until the market break down or breaks out, there are multiple options still open -- and the problem I've been running into this weekend is there are simply a lot of mixed messages being thrown off by different markets.  I'm going to present a few charts that convey the case for each side -- and maybe the best assumption from this data is that the market may just continue chopping around for a bit longer.

If it does cleanly break through this zone, the losing side might just want to get out of the way until things clarify again.

One of the more bullish charts I studied is the Philadelphia Bank Index (BKX), which, at the moment, sure looks like a fourth wave triangle -- and it's right where you'd expect to find one.  Sustained trade beneath the (C) wave low would open up more bearish prospects.

Also still looking bullish is the NYSE Composite (NYA) (continued, next page)