SPX and NDX: Will Bulls Seize This Opportunity?

Wednesday's update noted that the market was approaching an inflection point, and to watch the SPX 1440-1455 zone for signs of a reversal.  Later in that same session, the S&P 500 (SPX) reached an intra-day high of 1438.59 and reversed strongly.  This is again a very interesting position for the market, because the decline has unfolded in an apparently impulsive fashion, and can now be counted as five complete waves down.  Normally that would suggest at least one more leg lower, of at least equal length -- but I have my doubts for a number of reasons, and suspect the market may find a bottom fairly directly.

I am currently viewing the decline as a complete, or nearly complete, c-wave lower to wrap up yet another second wave.  This suggests a strong rally is waiting in the wings.  I'll cover a couple reasons for this view, beginning with the SPX chart below.  I'll caveat with the note that this is a very vague wave structure on SPX, though, so the possibility does exist that a larger decline is beginning.  Once the market sees its first decent bounce and retraces somewhere in the 50% zone, we'll be able to consider the prior swing low as important to the near-term bull case.

The chart below is the interpretation I'm presently leaning toward, and suggests a bottom fairly directly, followed by a strong rally to new highs.

Examining the hourly chart yields a slightly different perspective on the alternate potential.  The odds favor that bulls will find a bottom directly, but if they can't, then the shape of the previous rally would force us to consider the possibility that the present decline is part of the larger wave (2) which could retrace 50-62% of the total rally.

While I'm favoring an intermediate bullish resolution, the bears do still have hope.  I've noted 1434 as the key bullish pivot for some time, and the market was unable to sustain trade above that zone, which keeps bears in the running for the time being.  Accordingly, I'll update their chart with the bear potential.  While I still consider bears the underdog here, the market always reserves the right to change my mind. (continued, next page)

SPX, INDU, BKX, and US Dollar: Market Approaching a Key Inflection Point

Last update (Friday) noted that trade above 1416 would suggest a first target of 1422 and a second target of 1433.  Both targets have since been reached, amounting to 17 points of profit.  Of note, the S&P 500 (SPX) exactly tagged (to the penny), and reversed from, my "critical bear level" of 1434.27.  It remains to be seen if bulls can sustain trade above that zone.

I am continuing to give the edge to the bulls for the intermediate term, but the SPX has reached/is reaching another interesting potential inflection point.  Since November 29, my standing target for SPX has been 1445-1455, and we've come within 11 points so far.  This is a zone bears may attempt to defend, so longs should stay nimble going forward.

Beneath us, I would watch the 1420 area as the first important support zone, and sustained trade beneath that zone would serve as a warning to bulls, at least over the short-term -- with the possibility of a more bearish intermediate outcome.  Until then, as long as bulls maintain that support zone, the market is cleared to keep moving higher.

The next two charts help outline the importance of this inflection point, and the outcome here will help define the bigger picture.  According to Elliott Wave Theory, the market moves in three-waves when it's moving opposite to the direction of the next larger trend (correcting), and in five-waves when it's moving with the larger trend.  I'm continuing to favor the bulls for the intermediate-term, because the decline from 1474 counts better as a three-wave move, which suggests it was a counter-trend correction to the long-term uptrend -- but it's still not a clear-cut picture, and thus both possibilities remain valid.

The first chart is the bullish count, though it's important to keep in mind that there are different paths the market can take to reach these targets -- and very few markets move in a straight line.  I try to adjust the projected paths when possible and as needed.

PLEASE BE AWARE OF THE TYPO ON THIS CHART, WHICH SHOULD READ: "I'd more strongly favor the BLACK count with sustained trade beneath 1420."

The next chart shows the hourly count when viewed through a bearish lens.  The bears want this to be a three-wave rally (an ABC), which would make it a correction to the prior decline.  Bears will need to make a stand soon to maintain their hopes, and the market has almost reached the zone where a corrective rally could expect to be rejected.

The chart below depicts an ending diagonal (c) wave.  A related option, not shown on the bull chart above, is that of a leading diagonal first wave, which would play similarly over the short-term.  A leading diagonal or ending diagonal would make one more quick thrust up before a strong reversal toward 1385-1400.  The difference between the two is that the leading diagonal would still be intermediate bullish, and march higher after that decline.  Thus, we should watch the 1440-1455 zone carefully for any signs of reversal -- the chart below notes some signals to keep an eye on.

Those are the caveats for bulls regarding the current price zone.  The caveats for bears are different.  One problem for bears, as I see it, is that once the market sustains trade above 1434, we're back into a thinly-traded range (between 1434 and 1464), and there may not be much in the way of resistance until the upper edge of that range.  This would jive with the bullish interpretation of a third wave higher (blue (3)) underway.  Third waves are pure trending waves, and are unforgiving of traders who cling stubbornly to wrong-sided positions.  

Looking down the road a bit: If the market can get through the congestion zone, then we reach the old resistance zone from 1464-1474.  The market was rejected from that zone on three prior occasions.

There's an old trading adage that says, "The more often resistance (or support) is tested, the stronger it becomes."  My belief is the exact opposite:  "The more often resistance (or support) is tested, the weaker it becomes."  The logic behind my statement is that with every trip into resistance, more selling is exhausted.  With every trip to support, more buying is exhausted.  Eventually, the market chews through all the sellers or buyers in a given zone, and then simply breaks through and runs.

Moving back to the charts, the Dow Jones Industrials (INDU) briefly overlapped its key bullish pivot, then reversed from that zone.  When we look at this chart, we are again confronted with the three-wave rally into the 13367 print high (the "tell" I noted way back on October 8) -- and thus I have to continue giving decent odds to the view that new highs beyond 13367 will be reached over the next couple months.  Bears have work to do if they want to change that viewpoint. (continued, next page)

Publication note...

My apologies, but unfortunately, this week my schedule is largely filled with some very time-consuming personal matters to attend to -- so publication for this week will be spotty.  Trade safe.

SPX Update: Just the Short-term, Ma'am

Last update noted that the rally might be due a breather, but the price action since has been inconclusive.  I get bugged when I can't reconcile the charts at the 5-minute time frames and below, and that's the case right now.  The 5-minute SPX chart makes sense in two contexts, but the contexts are diametrically opposed from each other.  Basically, either my last read was correct and the market is forming some kind of screwy expanded flat 2/b (blue), or it's just completed the first wave of a new leg up.  The expanded flat makes more sense in the context of the price action that came before, but it just doesn't quite jive with the move since 1415.

I pretty much despise nights like this, because I've now spent roughly 7 hours charting, but feel like I have little to show for it.  The chart below discusses a few levels to watch, and some potential targets, but I'm hesitant to get too married to anything here.  Stay nimble if you try to trade this mess.

 
Next is the INDU chart, which performed well per the last update and came within a few thousands of a percent of reaching the first target -- but the wave seems to have become more complex.  The interpretation below jives reasonably well with the blue SPX count above -- so maybe my sense of frustration is misplaced... it's always possible I've got this reconciled perfectly and the market will perform exactly according to plan.  As I said, though, stay nimble here.

In conclusion, last update I warned about the possibility of a confusing and frustrating trading range forming, and that may well be what's going on.  A clear break of the range (especially on INDU) should help lead the market into more clarity.  Trade safe.

Reprinted by permission; copyright 2012 Minyanville Media, Inc.

SPX and INDU: Rally Due for a Breather?

Monday's update expected the S&P 500 (SPX) to head toward the 1426 +/- level, and noted that price zone should be watched for a possible turn.  SPX reached nearly 1424, and then reversed into a 20 point decline.  That decline does appear to have been impulsive, but there are presently two equally viable ways to fit that impulse into the surrounding structure, as shown on the chart below.  The chart also notes a pending bearish sell trigger if SPX sustains trade below 1403.

  
This has been a pretty sloppy market for the last couple sessions, and try as I might, I cannot yet reconcile the rally from 1385 as an impulse wave (a five wave move).  This means it's either incomplete and will head to new highs (black, below), or it's the b-wave of a larger expanded flat (shown below in blue), which will culminate in a decline toward 1384 or lower.  Sustained trade below 1400 would more strongly favor the expanded flat.
  

The next chart shows why I slightly favor the idea of a larger correction here.  SPX, RUT, Nasdaq, and NYA have all back-kissed the underside of major trend lines, and it would be unusual for them to simply power through without more of a pause. (continued, next page)

NYA Update: No Material Change

Just a quick update tonight since there's not much to add to yesterday's comments.  I spent a lot of time charting tonight, but have selected to share just one chart for the sake of illustrating the point.  Below is the NYA, which suggests bears aren't out of the woods just yet.  I'm sharing NYSE Composite (NYA) because the apparent triangle in SPX doesn't work on this chart (nor does it work on INDU -- see yesterday's short-term SPX chart) -- this is because the wave which would be labeled as "e" in the triangle (8235.23) exceeds the apparent "c" wave bottom (8235.89), which invalidates a triangle for this index (which, in case you forgot, is the NYA). 

The rally into yesterday's high appears to be only three waves, at multiple wave degrees.  In other words, the main question this chart poses is: higher prices now, or higher prices later?  Watch the invalidation levels for clues. 

Note the future wave notations aren't intended to be time-accurate -- I'm simply working in the available space of the chart.  Trade safe.

SPX Update: December Means It's Time to Start Throwing "Santa Rally" in the Title...

Will bulls get their Santa Rally?  Let's look at the evidence...

Last update noted that some new intermediate buy signals had triggered and expected that the rally still had/has further to run.  Friday appeared to be a triangle consolidation, so there's been no material change, and I still expect higher prices -- however, I have spent some ongoing time deciphering long-term charts (somewhere in the neighborhood of 400,000,000 hours during November), and believe I may have finally unlocked the intermediate wave structure.

When the correction first began in September, I was initially viewing it as a fourth wave decline -- largely because the structure appeared to need a fourth wave, and most of my indicators suggested that 1474 was unlikely to mark a major top.  But then the decline continued past the fourth wave invalidation level, and that raised questions for the bulls -- however, all throughout the decline to 1343, I continued to feel that the decline was most likely a corrective structure (meaning new highs are/were still out there for this market).

Without further ado, here is the S&P 500 (SPX) chart which I believe unlocks the intermediate structure.  If you're new to Elliott Wave Theory, the most basic concept is that the market moves in five waves when it's headed in the direction of the next larger trend, and in three waves (or combinations thereof) when it's heading against the next larger trend.  I believe the rally counts best as five waves, and the decline from September counts best as two three-wave structures.  This would mean the long-term trend is still "up."

I've been giving a slight long-term edge to the bulls for a while, and while the market hasn't yet reached the point where we can say the bears are out of the running, unless the market starts declining in a true five-wave impulse, I think we have to give serious consideration to the wave count shown below.  Note that the decline found support almost exactly at the 61.8% retrace, which is perfect for a second wave decline.  This count suggests the market is on the cusp of a massive rally -- a third wave up at Minor degree.  About mid-way through a third wave, the masses recognize what's happening and jump in -- and momentum continues in a relentless fashion.

I'm still not ready to say this count is "the one" -- but my gut likes it a lot.  Now it's up to the bulls to prove it with some key level breaks (noted later).

 
Zooming in a bit, the count below currently appears to be the most viable short-term interpretation:

And zooming in even more, here's an attempt to break down the smallest waves, along with a whole bunch of info on some key price points.  1426 +/- should be watched as a possible turn level. (continued, next page)