SPX Update: A Dangerous Market for Dip Buyers

The market finally broke the 1598 low, which I've been slightly favoring would be the intermediate outcome for this wave.  In fact, while the last wave felt very whippy, it appears I had the preferred count dead right all along.  Below is the "best guess" market path I published on June 12, and this is one of the reasons I love Elliott Wave theory.  When properly applied, there is simply no other system that matches it. 

We can see on the current chart that the market couldn't have followed this projection much better than it did.  Now we hold our collective breath and see if T3 is reached.  Again, please keep in mind that if this count is correct at intermediate degree, this is a nested third wave decline.  Third waves can be tricky, because the smaller waves are usually compressed, which means bounces should be muted.  

During third waves, I usually stay short (or long) until I start seeing impulsive moves to the upside (or downside) -- I've found that otherwise I often cover way too soon and the market runs away from me.  Draw your trend lines and use those as guides.   Keep in mind that the idea of a third wave decline is to punish the dip buyers. It punishes them by not letting them out and not giving them any bounces to allow them to get back to even on. It will keep punishing them until they stop and go curl up in a corner... or until they decide to go short -- then it bounces.  This doesn't mean bears should get complacent, and there is an alternate count which could find a bottom directly -- but I wouldn't suggest front running anything during a third wave.  Until there are signs of a turn, this is a dangerous market for dip buying.

If my preferred intermediate wave count continues to track, we now have to give a bit more credence to the idea that 1687 may mark a long-term top.  I last published the count shown below back in May, and I'm still considering it a marginal underdog -- however, if the current decline continues to play out as expected, then this more bearish count may gain additional traction.  The long-term expectations for this wave count would be new lows beneath the 2009 low.

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.