New Lows on Deck?

Yesterday, Bernanke let the market know that good news is bad, as continued economic improvement would mean the Fed is likely to start tapering asset purchases later this year, and could end purchases entirely by the middle of next year.  This is exactly what the equities market did not want to hear, since without the Fed's inflationary money printing, the actual cash value of the S&P 500 (SPX) is approximately twelve dollars and fifty-eight cents.

The dollar, on the other hand, was quite excited by this news, and rallied straight up in a rocket launch.

Interestingly, I suspect this scare will be the push needed to drive equities to the lower low I've felt the charts were suggesting was more likely to mark the wave iv bottom.  I think this press conference will embolden bears to step out of their caves for a bit, but the bottom line with Bullnanke's statements is that the QE money will still be flowing (for the time being), and that means continued liquidity for equities. 

Greed is a powerful emotion though, and I think it's more likely that the dip will still be bought, as there is yet no definite end in sight for the QE program.  There are hints it "may" end "if and when" the economy improves.  Of course, anything's possible, and maybe just the thought of QE ending will cause a rush for the exit, since no one wants to be the last one holding the bag.  But in my opinion, the charts still suggest the final long-term high isn't in yet.

But they do suggest that the much anticipated wave (2) high is.  I've seen a lot of confusion over how to label the recent rally, and I believe it represents another extended fifth wave, with a compressed (iv) and (v).  (When you trade Forex as much as I do, you learn to look for and recognize extended fifths.)

This wave looks like a textbook expanded flat with an ending diagonal c-wave in NQ (Nasdaq Futures).  In fact, in the private forums, I alerted everyone to this likelihood all the way back on Thursday, with the following statement:  "I think the new Globex lows in NQ in particular mark our ticket for a VERY high probability short after the market completely retraces the prior decline. Should make a marginal new high and then reverse to new lows."

The hourly chart continues to track well:

Updates to the Long-term SPX Projections

The SPX has reached the target zone, but the near-term is still a bit unclear in regards to what the market has planned from here.  Accordingly, I'm going to update the long-term charts.

It's always helpful to check how a count is tracking, so before we look at the current chart, let's take a look at my preferred count projection chart from back on February 7 and see how it's performed so far.

Below is the projection I published on February 7 (though for some reason I dated it "2/8/13" in the annotations -- though I'm reasonably proficient at tracking the market, apparently I have trouble using a calendar.).

Note: Right mouse click the chart and select "open in new window" to bring it up at full size.

If we compare that with the actual performance of the market, we can see that projection has tracked exceptionally well for the past four and a half months.  Note that for purposes of aligning charts across time frames, I've changed a few of the labels on the chart below (red 3 became red iii, for example).  I've also zoomed in a bit on the current price action:

The question in my mind is still whether red iv has completed or not.  I remain slightly in favor of the idea that it is not complete, and will become more complex, ultimately correcting lower before finding a bottom.

SPX Update: Unraveling the Near-term Potentials

The charts remain messy, but amazingly, despite the feel of hanging on the edges of our seats, the market has performed very much in line with the preferred count from June 12.  The pattern now can be viewed in a couple ways.  Bulls will look at it as a basing pattern, which projects to a retest of the all-time high.  This is entirely possible.  I have another way of looking at it, which I'll share in a moment.

First is the hourly chart, and the best-guess projection of June 12 has so far performed admirably.  I continue to marginally favor the bears on an intermediate basis, but it remains an exceptionally difficult call, which is typical of a fourth wave.  It remains possible that all of wave iv has completed at 1598, and I still feel that the bulls have the ball on a long-term basis. 

For the near-term, the pattern I suspect may be unfolding is shown below.  The other option is more straightforward, and is shown on the 10 minute charts which follows after the chart below.

Granted, the pattern I'm showing above isn't the "trade what you see" approach from a classic technical analysis standpoint.  One of the reasons I'm favoring the ending diagonal is the Philadelphia Bank Index (BKX) below:

The Charts Are Still a Mess...

I'm going to remain short on words again today, because there is still too much clutter in the charts to get a high-probability near-term read.  Intermediate term, I remain marginally in favor of the bears and do not believe the 1598 low will hold.  There's also no guarantee we reach the black (2) target, as there's potential of a nest of first and second waves lower.

One of the charts that bothers me for the bulls -- barring the fourth wave triangle in black.  Above the ii/B high and the triangle becomes very viable.

RUT is also a mess.  I'm having trouble buying into the bullish buy trigger... but I can't ignore it either.  992/993 is first resistance.

CVX is another chart suggesting there may be trouble brewing for bulls.  Not shown below is the fact that hourly RSI confirmed the low a week ago:

In conclusion, there are two places we find charts this confusing:  during fourth waves, and at important tops.  It remains to be seen which this is, and because of the sloppiness of the prior decline and the waves since, the near-term is exceptionally challenging to sort out.  I remain slightly in favor of the bears on an intermediate basis.  Trade safe.

(Ignore this next thing:  Added only for purposes of image hosting)

SPX Update: Outlook Clarifying Again?

The picture again seems to have clarified a bit, though sometimes this sense of clarity is illusory during a fourth wave.  As I've mentioned previously, fourth waves are essentially impossible to predict -- we basically have to take this wave session by session.  Despite the difficulty inherent in the wave itself, Wednesday's best-guess blue path projection (shown on the hourly SPX chart that same day) now appears to have been suspiciously prescient.

Since the options are myriad, as opposed to overwhelming everyone by covering them all in detail, I will cover them in brief, and then we're going to zero in on the path I presently feel is most likely.  We'll cover the other potentials in more detail as it becomes appropriate.

The most common fourth wave options are outlined in broad strokes on the hourly chart below of the S&P 500 (SPX), but I'm continuing to favor the same projected path I depicted on Wednesday -- especially since it has played out perfectly to this point.  Of course, that doesn't guarantee it will do so going forward -- but as the old saying goes: "If it ain't broke, don't count your chickens until the cows come home to roost."  Or something like that. 

Assuming this projection continues to play out, the next decline is anticipated to be strong.

The five-minute chart notes an interesting confluence of targets at 1658.  1674 is the next key upside level where things get hazy again.  It goes without saying that 1608 is now an important downside level for the bulls.

In conclusion, it presently appears likely the market will rally back above 1648 -- and my perfect world target for that rally is 1658 +/-.  It should also be noted that the importance of 1598 on the downside cannot be overstated at the moment -- any reversal beneath that level would be quite bearish and could lead to a small waterfall decline.  Trade safe.

SPX and BKX: No Material Change

The market remains in the ambiguous zone.  I remain marginally in favor of the bears, but am limiting myself to low risk trades, given the ambiguity. 

Let's take a look at the Philadelphia Bank Index (BKX) first, as the pattern here seems a bit cleaner than the S&P 500 (SPX).   

On the daily chart, we can see BKX may be due a larger correction.

SPX is unchanged.  I've outlined one potential path in blue, but there's really nothing to give me much confidence in that path.  I've broken down the options in a bit more detail on the chart which follows this one.

This chart outlines the two basic counts, with one variation in green (the variation is what's depicted on the SPX chart above).

In conclusion, the market remains ambiguous, but I'm continuing to give bears the slight edge heading forward.  Trade safe.

Bears May Have the Slight Edge

Let me start off by saying:  I don't know.  The market did exactly what I expected in Wednesday's update, but it still hasn't answered the big question.  On Wednesday, at least I felt I knew where it was headed over the near-term -- but now it's not so clear.  As I wrote then:

...fourth waves rarely follow the "most obvious" pattern.  They usually turn infinitely frustrating at some point, and become all but impossible to predict.

And as I warned back on June 3:

If this is a fourth wave at minor degree, it will probably get ugly and confusing at some point, and leave bulls and bears alike scratching their heads trying to figure out what the market's going to do next.  The market tends to alternate between trending waves and cycling waves, and fourth wave corrections in a bull move usually cycle in a sideways-down fashion.  They trend near-term, but then stop and grind around just when you think they're going somewhere, chewing up accounts and driving all but the nimblest traders nuts. From my perspective, we haven't reached that point just yet, so enjoy the clarity while it lasts.

I've had a great run since May 6, when I switched footing and set my S&P 500 (SPX) targets at 1640-50 and 1680-90 -- then adjusted on the fly and called the 1680-90 zone "almost a given," for a total of  about 70 points of captured upside.  From there, I hit the turn off the big reaction rally on May 28 and captured 40+ points of downside into the first target zone of 1620-29; then hit the next turn at 1647 for another 40 points into the second target of 1600-1614.  That's about 150 points of profit in a (supposed) "buy and hold" market which, as of yesterday, closed only 28 points higher than it was on May 6 when this run started.

Since I simply can't see a way to top the performance of the past 30+ days, I was thinking maybe I should go out on a high note, and retire to Maui immediately.  Then I remembered: Wait a minute, I already live on Maui!  So instead, I considered retiring to some dank inner-city apartment with noisy plumbing in a high-crime area.  That didn't sound appealing at all, though... so in the end I decided I'd keep trading and writing updates.  I'll have to put off my dreams for another day! 

And I'd better, because as of right this minute: I don't know.  I've been staring at charts a lot over the last few days, and they haven't gotten much clearer.

I'm basically split roughly 55/45 in favor of the bears, but it's almost too close to call.  Let's start off with one of the charts that seems to be saying bears have a slight edge over the intermediate term:

 
The S&P 500 has all the required ingredients for a completed fourth wave, but I'm more inclined to believe it's incomplete.  Bulls must hold the 1598 low, since trade beneath that level would suggest a strong third wave decline.