The Trouble with Bubbles

I hope readers don't mind, but I'm diverging a bit from my usual today, because a) I spent way too much time on this article and b) I'm actually running out of ways to say the same thing over and over regarding the intermediate outlook.  The market outlook remains essentially unchanged on an intermediate basis -- it's still watch and wait at the pivotal 1600 +/- zone.  So today, I'm going to embark on a more overarching economic commentary.

The U.S. Government made big headlines recently by announcing it will pay down a portion ($35 billion) of the national debt this quarter, the first such pay-down in six years.  $35 billion sounds like a lot, until you consider that the national debt has been increasing by an average of $3.83 billion every single day since September 2007.  I guess we're making progress by reversing about 9 days of the past 2,000+ days of debt, but that means we're still left with... let's see, carry the zero... 2,000+ days of debt to go!  If Uncle Sam can maintain this strict level of discipline, we'll be completely paid off by the 23rd century.

I maintain that our policymakers are creating a massive debt-driven bubble, and in this article I'm going to outline why I feel this is a mistake by analogizing some of the unintended consequences in depth (in "debt-th"?). 

Briefly, the historical chart below is from the always-interesting Sentimentrader.com, and shows the current ratio of mutual funds and ETF assets to money market assets.  The chart suggests equities are approaching the upper range of the Bubble Zone.  We can see the current ratio of 3.31 has only been reached once before, in 2006-2007; and we can also see in that instance, equities continued to rise for a while afterwards -- so these types of signals can take time to work.  But they're hard to ignore.  As Edmund Burke said, "Those who don't know history are destined to repeat it."

The x-factor impacting all of our lives and driving the equities bubble has been the Fed's printing press and Quantitative Easing.  The majority of Americans don't even know what QE is, much less care -- but I believe there are genuine consequences awaiting the Fed's current policy, which will ultimately impact the lives of virtually all Americans.  (The fact that you're even reading this suggests you're probably more informed than the average American, and already know what QE is -- but in case you don't, here's the Wiki explanation.)

The Fed's stated goal with QE-Infinity is to improve the labor market -- and yesterday, new jobless claims came in at a five-year low, which undoubtedly has the Fed Governors secretly high-fiving each other in the restroom.  As I see it, though, there's a problem here (beyond hygiene): they are attempting to grow our economy through debt-driven consumption. 

My contention is that there can be no lasting growth though this type of debt expansion.  It will seem to work for a while, because the Fed's printing press is creating a liquidity boom, and that excess liquidity is driving an increase in certain asset prices.  This is not unlike the way they created the housing bubble.  Excess central bank liquidity sends false signals to the market -- essentially, the market sees all the extra cash floating around and incorrectly concludes that the economy is better than it actually is. 

To illustrate the impact of these false signals on the future economy, I'm going to draw an analogical story about a poor man who's suddenly (and erroneously) granted a big line of credit, which he begins using immediately and irresponsibly. Purely for sake of illustration in this story, let's give our hypothetical big spender a name: We'll call him "Benny B" ("B" stands for "Big spender"!  I have no idea who you're thinking of here.)  Benny B has no job and no assets, but he's mistakenly granted a humongous line of credit by our hypothetical credit card bank, which we'll call simply, "The U.S. Government." 

For a while, Benny B can use his line of credit to run around town spending like crazy.  People see him cruising in his limo, dressed in his new Armani suit, and eating at the finest restaurants every night.  The community naturally assumes he's rich, and in short order, Benny B gains a good reputation.  Eventually, Benny B's favorite fancy restaurant even decides to extend a very large monthly tab to him.

Never one to miss an opportunity, Benny B starts treating all his family and friends to dinner at this restaurant every single night.  He runs up his tab higher and higher.  Of course, the restaurant owner sincerely believes Benny will eventually pay his debt -- so each night after the restaurant closes, he includes Benny B's latest tab in the restaurant's asset column as "uncollected profit and revenue."  And since Benny B has an abundance of "friends" nowadays, the owner notes there's an awful lot of new business coming in, night after night.  He decides he needs to hire more chefs and waiters, and also begin an extensive remodel. 

Benny's heightened consumption is sending the restaurant false signals about the overall state of the local economy -- and with the owner now taking action based on those false signals, they have officially been sucked into the Benny B Bubble.

This all seems to be working out great for everyone, for a while anyway.  Benny is living high on the hog and local businesses seem to be benefitting.  Even when it's time for Benny B to start paying down a portion of his debt to the restaurant, there's no crisis right away, because initially Benny can pay some of that debt with his US Government Credit Card (USGCC).  By doing so, he effectively "kicks the can" on a portion of his restaurant debt straight into someone else's "uncollected profit and revenue" column.  Now the restaurant and the credit card company are both inside the Benny B Bubble -- but still, neither of them know it yet. 

For most people, the real trouble would begin when it's time to pay off the debt they kicked over to the credit card -- but not for Benny B!  He's a financial genius, so by the time the first credit card payment comes due, he's managed to finagle a loan from the -- again, purely hypothetical! -- Credit Bubble Bank of China (CBBC), which he uses to pay the interest (but not the principal) on the debt he owes to the credit card company.  He's kicked the can again, and now involved yet another company in his debt scheme.  The bubble grows larger. 

The root problem here is that Benny B isn't producing anything at all; he is only consuming, which temporarily increases demand and thus seems to be stimulating the local economy.  But because his consumption is debt-driven, it is unsustainable, which means the signals it sends to businesses are false.  And, as one example of a direct unintended result, the restaurant owner is now unwittingly doing two things which will actually hurt his business down the road:

1) He's counting Benny B's debts in his asset column.
2) He is relying on Benny's large nightly "revenue" to justify certain forward-looking expenses.

Other businesses are in a similar conundrum -- for example, Benny purchased a new Ferrari on credit, and he's having a new McMansion custom-built by a small local homebuilder (via minimum down payment, of course).  Due to Benny's debt-driven consumption, these other business also mistakenly think things are going better at the moment -- but they too will be hurt down the road. 

Without even consciously thinking in these terms, these businesses naturally assume that, somewhere up the line, Benny B is producing something, which he's exchanging for the money he will then give to them.  After all, money is simply a convenient tool which stores value from one form of production to another, and thus allows us to bypass direct barter.  If we remove its use as an indirect exchange of my goods/services for your goods/services, then money has no intrinsic value of its own.  Benny B's money isn't coming from production (current or future) in any form at all -- in fact, Benny B lacks the ability to produce anything himself -- thus his money is, in effect, completely worthless. 

Still: no one in our story realizes that just yet.

We could go on and on with the can-kicking (if Benny B obtained yet another loan), but for sake of time, let's bring this to conclusion here and assume the CBBC is Benny's lender of last resort.  It's finally time for him to pay that loan -- except he can't, because he has no income.  Thus the CBBC is the first to have Benny's bubble pop in their face.  And since Benny also has no real assets, they have no choice but to write off Benny's debt completely. 

Soon after, the USGCC learns that Benny B had been maintaining the interest on his debt to them with that now-defunct CBBC line credit.  All the money they lent to Benny is gone forever, and they too have to write off his debt.  At this point, Benny B's banks are suffering, but their suffering is not immediately driven home to the local economy.  That's about to change.   

Sadly, as Benny B's massive credit scheme falls apart, he will bring real people down with him.  The restaurant owner is one of the last to learn what's been going on, and he suddenly realizes that the $250,000 line of credit he extended to Benny B will never be repaid.  He sits down that night with the books, recalculating his balance sheet without that $250,000 "asset" (which just vanished back into the thin air from whence it came).  He realizes he can no longer afford the restaurant's new staff, they must all be fired. Worse, he realizes he's now overcommitted on his debts, because he thought he had additional assets, and -- with the restaurant packed with Benny's friends every night -- he thought his business had reached a new permanently-high plateau. 

The false signals Benny B sent caused him to conclude the business was doing much better than it actually was, and much better than is actually sustainable. 

He checks the numbers several times, but there is no way around it.  Without Benny B's nightly business, the owner realizes he is overextended to the point where he can no longer stay afloat at all.  He must close the restaurant, firing everyone.  Benny B's temporary "stimulation of the work force" has backfired in the end.

The small local home builder, who just completed Benny's McMansion, won't go bankrupt immediately, but his future hangs on whether or not he can sell the house quickly and recoup his capital.  The Ferrari dealership is able to repo the car, but it's completely thrashed and littered with empty beer cans and old beard clippings.  They take a write-off.  Not all of the businesses who acted on Benny B's false signals will go bankrupt -- but all will suffer to one degree or another.

Every one of the businesses Benny purchased things from was producing real goods and services, so his demand for those things briefly seemed to stimulate the economy -- yet because Benny's money came from debt and not production, there was no way his spending spree could have any lasting positive impact.  In fact, in the end, it hurt more than it helped.

The problem is debt does not help when used as an end in itself; debt can only stimulate the economy when it is used as the means to invest in future production.  If Benny had taken his loan and built a successful business, instead of simply consuming, this story would have a much different ending.  The same is true of our story out here in the actual world:  In the first decade of the 2000's, each dollar of new credit has produced a mere 18 cents of new GDP, which is ridiculously low from a historical standpoint (contrast that with more than 59 cents per dollar of GDP growth in the '60's), which suggests that most new debt is being used for consumption and speculation.  Debt-driven consumption always backfires in the end, for the same reason it would backfire personally if you simply ran up your own debts endlessly without increasing your income.

To drive this all home to our current situation:  the Fed and our government are "creating" money through debt and from thin air, and this will seem to work for a time.  But real money simply can’t be created from thin air, any more than we can create the tangible things money represents, like cars and houses, from thin air.  

 The market presently believes there's more demand than there actually is, and is thus expanding accordingly (or, in some cases, shrinking slower than it normally would), which makes this a bubble.  They can’t continue this debt expansion indefinitely; it must end eventually.

At some point they will be forced to stop consuming, because of fiscal problems or due to rabid inflation, or due to something presently completely unforeseen -- and this whole grand economic experiment will fall apart.  Exactly when the endgame arrives is anyone's guess.  But when we finally reach the end of the Fed's rainbow, we'll find there's no mythical pot of gold -- only a pot full of worthless IOU's, which are redeemable for nothing.  Trade safe.

 

Reprinted by permission, copyright 2013 Minyanville Media, Inc.

SPX and BKX: Will Bears Capitalize?

Tomorrow's article is going to be titled "The Trouble with Bubbles," and will be a bit longer on words, so today's article is going to focus more on charts.  Of course, I'm assuming I won't die of exhaustion between now and then -- if I don't make it through 'til tomorrow, then that article will probably be really short.

Yesterday's near-term ending diagonal count appears to have been correct, although it ended a bit abruptly, about 4 points shy of the exact "perfect world" target, and the S&P 500 (SPX) declined directly off the open.  With yesterday’s decline, bears have a good opportunity to shift the momentum, and have a defensible position at the 1600 zone -- now they have to continue to run with it.

If my intermediate thesis is correct, then we appear to be wrapping up multiple degrees of fifth waves, which should be followed by the first lasting correction of 2013.  It's too early to paint targets with anything but broad strokes -- in fact, to be fair, it's too early to confirm an intermediate correction has started at all.  This is unabashed analytical front-running, and the bullish option is that this fifth wave is sub-dividing into a larger five-wave structure, which would mean we've only seen wave i of v so far (shown in black).  I'm continuing to favor the more bearish intermediate view at present.

It's also still not impossible that yesterday's decline was simply another micro fourth wave unraveling, with one more thrust up still to come.  This is why I'm still watching the 1606 +/- zone, and depending on the shape of the next move, would probably not remain bearishly biased if the market can sustain a breakout.

SPX Update: FOMC Day

The SPX made a new all-time high yesterday, which resets the wave count at one degree, however, I continue to feel that the 1600 zone is an important inflection point and that there's good potential for a turn here.  We also have the FOMC announcement coming up today, which adds to the possibilities for an inflection point.  In my perfect world, I'd like to see the market embark on a deeper correction in the near future and begin to unravel some of the fourth waves which need to be unwound.  Since all I've talked about for the past couple weeks is the idea of a decent intermediate correction developing soon, I've also updated the big picture chart, with a focus on the bullish long-term wave count.

From a big picture standpoint, I would consider myself neutral at this exact moment.  I was bullish up until recently, but I'll be the first to admit I make a terrible bull, and the potential of a triple top here is hard for me to ignore.  Especially since I'm fundamentally bearish on the massive systemic debt the world has accumulated, and believe that the only "reason" to be bullish is because the Fed has created another bubble by pumping ridiculous amounts of liquidity into the market.     

Since I do believe this is a bubble and that it will ultimately end like every other bubble does (i.e.- POP!), I intend to watch corrections carefully to try and determine if they are only corrections, or if they are the start of the popping phase.

Unless SPX can sustain trade above 1606, I continue to feel that an intermediate correction remains likely.  The chart below also roughly outlines the longer-term bull count at this stage -- to be honest, the long-term bear counts are a bit spotty with the market in this position, hence they bear the alternate labeling (red "alt.") and are not detailed on this chart.  They would jump to the fore if any forthcoming corrections were to overlap the black wave 1 peak.

 
From a near-term perspective, my preferred interpretation of the pattern is a bearish ending diagonal (shown below).  To position this in the chart above, this wave would represent red 5 of black 3.  It's worth noting that this wave does not need to go any higher.  Fifth waves in ED's can be quite unreliable, and it has already fulfilled the minimum requirements.  

Since we have to be aware of the if/then nature of the market, this pattern would be called into question if the market were to sustain trade above 1606.  If that were to happen, there are several bullish options we'd need to consider, including the potential that this is wave i of red 5, which would target the total wave toward the mid-to-high 1600s.  From a classic technical analysis standpoint, the pattern is a cup and handle, which further argues bears should probably get out of the way on a sustained breakout.

In conclusion, the 1600 zone remains an important inflection point, and I still feel the odds are good that an intermediate correction will begin in the near future.  If the market instead sustains trade above 1606, then it will be time to re-examine that outlook.  Trade safe.

 

Reprinted by permission, Copyright 2013 Minyanville Media, Inc.

SPX Update: The Moment of Truth

I was recently reminded by a reader that sometimes people can have very short memories, as I was accused of the dreaded "top calling."  So, to clear the air, let's take a quick stroll down memory lane.  On April 16, I wrote:

As long-time readers know, I have been primarily bullish on equities since November 2012 -- but for the first time since then, I truly have no desire to "buy the dip" for anything longer than a short-term trade.  There are some disturbing early warning signs that the market may be undergoing a fundamental change of character.  I don't presently know how long this will last, but when I see signals like this from the market, I don't screw around and risk gambling away my financial future.

On the chart I published within that article, I projected a rally to the 1570 zone, followed by a decline toward 1540, followed by a rally to 1580 -- all of which have since happened.  If we ignore the (correct) projection for that roundtrip lower and only look at the "top call" of April 16, basis the 1570 projection of that same day, then the S&P 500 (SPX) is now up almost an additional 13 points. 

To go back even farther, I was exceedingly bullish from the very first trading day of the year (see: SPX and US Dollar: Rally Likely Only Halfway Through) and continued outlining the bull case for several weeks after.  I stayed unequivocally bullish until my adjusted target zone of 1520-1530 was reached, and since then, I've hit several of the turns with pretty darn good accuracy.  If some readers are expecting more outta me than this, then I'd like to state, quite matter-of-factly, that I simply can't do much better.  I'm quite sure somebody out there can, but this year overall has been about as good as it gets for me personally.

So I would like to take this opportunity to lovingly remind less-experienced traders that there simply is no such thing as an infallible crystal ball in market projection.  If one is expecting the impossible in terms of prediction, then one is certain to be disappointed.  Make sure your trading goals are realistic and achievable, or you are doomed to an ever-shrinking account caused by repeatedly pushing your luck to the breaking point (also known as "overtrading").  Todd Harrison has a philosophy called "hit it and quit it," and I think that sums it up just about as succinctly as possible. 

Since April 16, I have been systematically outlining the bearish signals which have popped up, including things like overly bullish sentiment, and the smack-down in IBM on their earnings miss.  These don't guarantee another leg down, but nothing guarantees anything in this business.  The only thing we're ever "guaranteed" is an interesting ride.  Well, that and a ludicrously Keynesian economic policy, of course.

The rally feels like it will never end, which, ironically, is exactly how it should feel if it's going to end.  Tops never look like tops until they're in the rearview mirror, otherwise nobody would have bought a single ounce of gold near $1900. 

Note the daily chart of SPX below, and think back to how many of those tops "felt" like tops at the time.  Incidentally, if you're an intermediate trader, there is almost never any need to front-run a top.  While I will frequently front-run tops (and bottoms) in my analysis and projections, my philosophy as a trader is generally (not always, but usually) to wait until the market retraces at least 61% of the assumed first-leg down before going short -- again, this applies, for me, when looking at things from an intermediate basis or longer (short-term is another matter entirely).  That approach not only seems to be in line with "the way tops work," but also helps minimize risk by providing a clear zone for stop-losses.  I'll never understand the subscription services who tell their subscribers to front-run by selling into the teeth of a high-momentum rally (seemingly) every other week.  I see no need to take on that level of unmitigated risk. 

As I mentioned last week, if the market breaks out convincingly over 1600, then we probably need to set our sights on the mid-to-high 1600's as the next target zone.

The rally has now exceeded my initial expectations, and the moment of truth has finally arrived.

The 10-minute chart notes one of those amazing "coincidences," when the market turned perfectly at the upper boundary of the blue trend channel I drew for Thursday's update.  Note the melt-up channel has finally broken.

SPX Update: Bears vs. The Fed

This market remains a question of historical indicators and the "real" economy vs. Fed liquidity injections.  QE-Infinity (incidentally, I do believe I was the first to actually coin this term) is still in full effect, and even as I write this column the Fed is feeding the market via its primary dealer accounts, to the tune of almost $36 billion over the short-term.  As expected, Bernanke's policy of "no banker left behind" has worked wonders for equities up to this point, though seems to be doing little to help the actual economy.

Now for a bit of market history which may fight the Fed -- I haven't mentioned this statistic in about half a year, but it's relevant to share it with readers again today.  Last week, IBM announced dismal first quarter earnings results; shares have taken a beating ever since, and dropped about 8%.  This bears attention because the S&P 500 (SPX) and IBM have a correlated history when IBM trades down on earnings:  70% of the time this has happened in the past, SPX then trades lower over the next five weeks.  It bears noting that the last time I mentioned this correlation was on October 22, 2012 -- and almost exactly five weeks later, the SPX reached the November bottom. 

That said, I'm reiterating this next point, because it's a discussion I seem to have awfully frequently with newer traders:  even 70% odds still mean that exactly 3 out of 10 times, the market will end up doing the exact opposite thing. Nevertheless, it makes no sense to me to take the 30% stance -- so unless the market breaks out over long-term resistance here, I'm continuing to favor the idea that there's at least one more leg down coming.

My outlook isn't coming from any sense of moral conviction about what the market is "supposed" to do next, it's purely based on the odds.  To go back to my poker analogies of the past:  when I'm dealt a pair of aces before the flop, I raise the bet not because I'm "predicting" the hand will win, or even because I think it "should" win -- I take action because the odds favor it will win, so raising is the correct play.  Yet, as anyone who's played serious poker will tell you, the odds never guarantee anything (except frustration when they go against you!).  Point being, when I see signals like I've seen in the current market, I'm inclined to sell the rallies for the same reason.  A minority of the time, though, I'll be dead wrong -- but I can't actually control that part of the equation.

This has sparked another thought that's probably worth sharing.  In order to be successful at trading, I think one has to learn to become comfortable with the idea of uncertainty.  Most of us have some difficulty with uncertainty, so we seek out ways to avoid or eliminate it, sometimes going to great lengths to do so, even if that requires we cling to a false sense of certainty.  I believe this is why some analytical services have decided to take the approach of: "Mortgage the house today, because our prediction is most definitely going to happen in the market tomorrow! No doubt about it!"

Personally, I view that approach as moderately irresponsible, but strangely, I believe it actually makes some people feel safer -- especially less experienced traders -- which means that approach probably brings in new subscribers for those services.  Ironically, to my way of thinking, less experienced traders are exactly the people who don't want to be feeling any level of over-elevated conviction.  Trading is hard enough already -- but it's ten times harder once a sense of conviction engages our emotions and our egos.  Anyway, that's just how I view it.

So let's talk about what is most definitely, without a doubt, for sure going to happen today!  Get set to mortgage the house, because I'm givin' ya gems here!  Ready?  What will most certainly happen today (and there is almost no doubt in my mind!) is:  the sun will rise.  You heard it here first!  As far as the market goes, though, we're still in the inflection zone -- so the bears will either get it done here, or they won't.

The hourly chart remains materially unchanged, though I was able to correct the ChiOsc in the lower panel (yesterday, the Java program simply wouldn't let me draw the signal line where I wanted it.)

I've detailed two 10-minute charts of SPX.  The first one notes a confluence of resistance sitting just overhead, in the 1585-1590 zone I talked about yesterday:

The second 10-minute chart attempts to interpret the near-term wave structure.  This is actually a pretty funky wave form going back to the 1536 swing low, so if you're trading this, then please do so cautiously.

Yesterday's Flash Crash Fit the Wave Structure

Over the past week, I've outlined about half a dozen reasons why the odds favor the bears should get another leg down after this rally, and now the market has finally entered the critical "retest" zone for the 1597 high.  Elliott Wave is extremely particular about exact price points, whereas classic technical analysis allows a bit more leeway, and in classic TA, a "retest" is considered as something of a zone which extends somewhat below and above the prior swing high (or low).  I tend to focus more on Elliott Wave analysis within this column, but in practice I blend the two disciplines.  In either case, the market is now at an inflection point.

Yesterday made for an interesting session, as the market experienced a mini flash-crash after AP had their Twitter account briefly taken over by terrorists, who sent out some frightening false news items.  The market experienced several minutes of sheer panicked free-fall, when the terrorists falsely tweeted that Ben Bernanke had just been spotted reading a copy of The Road to Serfdom by Friedrich Hayek.  But it recovered almost immediately, as investors quickly realized this Tweet was so incredibly unbelievable, it had to be a hoax.  I think they also Tweeted something about explosions at the White House, but the market probably shrugged that off as irrelevant.

The hourly chart remains unchanged, and the "best guess" projection I detailed on April 16 has since tracked with far more accuracy than it had any right to.  Note the levels of the Chaikin oscillator in the bottom panel (also note that for some reason, Java refused to draw the red sell signal line in the correct place!  It should be drawn higher on that chart than it is, close to the indicator's current level.)

On the one-minute chart below, there's an amazing little tidbit for those of you who love math and the harmony of the markets -- and it's especially interesting given the events of yesterday's session.  On the chart below, the rally from blue B to blue wave (3) (from 1548.19 to 1560.18) is 11.99 points.  I am interpreting yesterday's rally as an extended fifth, and extended fifth waves often target the 1.618 extension of waves 1-3.  Waves (1) through (3) were 11.99 points.  If we multiply that by 1.618 (the expected extension), it calculates to be 19.40 points.

19.40 + 1560.18 (the peak of blue (3)) = 1579.58 -- which was the exact to-the-penny high of the wave before the flash crash. (Insert Twilight Zone music here...)   I find this all the more fascinating given the "unpredictable" event in the form of terrorist activity and the market's subsequent 16-point plunge.

While I remain in favor of the bear view, the 10-minute chart shows the near-term bull count in rough detail.

SPX Update: Clues from a Proprietary Sell Indicator

Yesterday's article was long on words, so today we're going to focus more on charts.  There's been no material change in the outlook, since so far the market hasn't done anything even vaguely unexpected, but I've refined a few charts and potential targets.

The first chart I'd like to share is one of my proprietary signal indicators.  While I'm not publishing all the constituents which actually make up this indicator, I have noted the prior few years of signals on the S&P 500 (SPX) chart below.  This is one of the signals which is presently keeping me in favor of the bears for another leg down.  Note the present similarities to the examples of 2011 where two sell signals fired off in close succession.

Today, we're going to start off with the one-minute chart and build from there.  One of the challenges in market prediction is the anticipation of how a corrective wave will unfold.  Corrective waves can be quite complex and thus extremely difficult to anticipate perfectly in advance.  Beyond that, the "easiest" market reads are almost always done in real-time, since the market gives off new information by the minute.  It's almost impossible to anticipate every potential turn which will come down the road in a given session (and even more impractical to try and outline them). 

But since a static published column obviously doesn't have the luxury of speaking in real-time, what I try to do is look several steps down the road to give readers some idea of what I'd watch during the session.  Assumptions have to be made in order to do this, and the first assumption I'm making is that this is indeed a corrective rally, as opposed to a new impulse wave which will head to new highs.  Accordingly, I've noted the two most likely possibilities for a corrective wave on the chart below.  If the market sustains trade above 1577, then we'll have to look more seriously at other angles.

 
In the event that my thesis of a corrective rally is wrong, on the 10-minute chart below, in black I have noted the rough turning points I'd watch for an impulsive rally.  Again, presently the only invalidation level for a corrective wave is the prior high -- so all we can do is watch key resistance at 1577 for our first clue that something more bullish may be afoot.