Too Many Markets, Too Little Time

I apologize for the brevity of the updates lately, I've had a great deal going on in my personal life, and haven't had much in the way of free time lately.  Hopefully things should return to "normal" (whatever that is) in the reasonably near future.  I've updated several charts, but will have to keep the body of the article short. 

First up is the Nasduck Composite (DUCK), which is probably the clearest example I could find of a market that suggests new lows on the way.

Next is the NYSE Composite (NYA), which has a similar bearish rising wedge:

The Philadelphia Bank Index (BKX) chart notes a bearish sell trigger:

In the last update I noted that we should begin looking for a correction, since three markets had reached target zones.  It appears likely that a deeper correction is on the way, and I've noted the first two downside targets on the S&P 500 (SPX).  This is of course predicated on bears reclaiming 1680.

In conclusion, the correction suggested in the last update appears to be unfolding now.  Note that wave (4) could run quite deep without creating any technical issues, and give the shallow nature of wave (2), a deeper wave (4) correction would not be out of the ordinary.  Also continue to keep in mind the alternate possibility that ALL OF wave v completed at 1698.  Trade safe.

SPX, RUT, BKX: Russell 2000 Reaches December's Target

The rally has continued largely unabated since last update, and several markets have reached their target zones.  As yet there's no concrete sign of a turn, but two markets have reached near-term targets, and one has reached a long-term target, and this suggests a cautious stance is warranted. 

The S&P 500 (SPX) reached the 1695-1705 target zone for blue wave (3), but it's unclear if it has farther to run or not.  So far, the melt-up channel remains intact.

The Philadelphia Bank Index (BKX) cleared target zone one and is within pennies of the second target.  It's now bumping its head against theoretical channel resistance, which is always a zone where I consider action in the form of taking profits and/or anticipating/positioning for a reversal.    This is a zone that provides information and defines clear lines of demarcation.

Of some note, the Russell 2000 (RUT) has reached the long-standing target of 1050, from way back in December.  Again, it's unclear if there's farther to run -- but this market is also bumping into theoretical channel resistance, in conjunction with reaching my long-term target. 

In conclusion, there's yet been no real signs of a reversal, but with several markets reaching targets and resistance levels, this is clearly an area where we should begin watching for one.  Presently, it appears the market still has a fourth wave decline to unravel, followed by a fifth wave to new highs.  The alternate count allows the possibility that the market is completing fifth waves at multiple degrees, but we'll need to see the form of any forthcoming decline before adding credence to that possibility.  Trade safe.

Short Update

Unfortunately, I only have the time and energy for a short update today.  Yesterday, SPX made a new All-Time-High, as the charts suggested it would.  So far it's come within a couple points of the next blue box target zone from 7/15, and I have some caution levels to help determine whether it will be reached or not. 

The first near-term level for bears to reclaim is the previous all-time-high at 1687.  The next key level is 1684 (which was also the first installment in the now-famous series of George Orwell novels, featuring Ye Olde Big Brother).  If those levels fail to act as support, then we may have begun the blue wave (4) correction a couple points early.

Beyond that, there isn't much to add from the previous update.  Trade safe.

SPX and Apple Have Both Reached Minor Inflection Points

Not surprisingly, the market encountered some resistance at the all-time-high, making yesterday the first down day the market has seen since the Truman Administration.  At least, it seemed that way... but it's probably been longer. 

There is some room in the charts for near-term bearish movement, but right now the decline is only an abc sequence, so bears will need another new low to begin thinking in terms of a more meaningful correction.  The near-term chart below outlines some key short-term levels and contingent targets.  If we see a solid new low (shown as gray (5)), then we'll begin anticipating the next bounce will be followed by another leg lower for the near-term (gray ABC).

Stepping back a time frame, I'm inclined to believe that we're still in blue wave (3) until the market says otherwise.  Note the bearish alternate count remains viable as the all-time high is still intact.

I'd also like to share a long-term count I've been tracking for a while in the Nasdaq Composite (COMPQ).  The unique perspective that the Nasdaq affords is that we know, without a doubt, to expect a five-wave rally.  In SPX and many other indices, we really don't know which long-term structure to anticipate -- either an ABC or an impulse wave.  But because Nasdaq is still recovering from the tech crash, and is clearly in a c-wave, we know to expect an impulsive upwards move.

Note the Nasdaq recently reached the 61.8% retrace of the tech crash, which is always a good spot for a correction to begin.  Ultimately, it appears more likely that Nasdaq has higher prices in store for the long-term, and the 4000-4200 zone presents targets at two wave degrees, so assuming we can get through current resistance, that may be the next spot to watch.  Of note, my preferred count for Nasdaq has us in wave v of (5) of v -- which means it's anticipated to be the last leg up at multiple wave degrees.  This also means that it has already completed the minimum expectations of a fifth wave (having reached a new high), so there's no room for complacency heading forward.

I'd also like to briefly update Apple (AAPL). Apple has performed well and tacked on about 20 points since I suggested it as a long play on July 8.  Since we timed this entry properly, we can either take profits or move stops up to roughly break even, thereby limiting or eliminating risk.  In any case, AAPL has reached an inflection point, so I'd like to talk about the other side of the trade in more detail. 

I'm still favoring the bulls for Apple, and the preferred count is a bullish nest of first and second waves, which would lead to a strong rally in a nested third wave.  The only thing bothering me for AAPL is the rising wedge shape it's taken, but it's not uncommon to see this structure before a strong rally.  However, it needs to launch out of that wedge with authority to validate the bull case; and the longer it hangs around current price levels, the more cautious I become.  I view the bearish wave count as roughly a 40% underdog, but Apple has now completed a potential ABC rally, so it needs to be watched closely for the moment. 

In conclusion, the trends remain pointed up for the time being, but the market has reached an inflection point, and a new low would shift the near-term trend.  And that always leaves open the possibility of a larger trend shift underway, though it currently appears more likely that the market will head on to new highs after this correction completes.  Trade safe.

 

Reprinted by permission, copyright 2013 Minyanville Media, Inc.

Are We Witnessing a Blow-Off Top?

Today we'll revisit the long-term wave counts in two markets, both of which suggest this may be the final wave of the rally.  A blow-off top in progress.  Last update I discussed the bull case.  Today is not a reversal of that argument by any means, it's simply a discussion that encompasses a larger time frame.  Near-term, I feel bulls have better odds, and the next target zone for the S&P 500 (SPX) exceeds the all-time-high.  But in the bigger picture, the party may be coming to a close in the not-too-distant future.

First up is the S&P 500 (SPX).  When I drew the initial projections for this chart back in early February, I obviously couldn't know it would follow that projection almost turn-for-turn for the next five straight months.  If only I could have held my nose and bought the dips exactly as anticipated.  This is such a hard environment from which to unplug one's brain, though, with the ongoing Central Bank machinations.  But from a purely technical standpoint, the first read is usually the right one.

In any case, it appears reasonably likely that February's projection of 1750 +/- will come very close to being reached.  It also appears this is a fifth wave rally -- which means its job is to get us to believe it will never end.  Fifth waves are where smart money passes the bag to dumb money, just before a move finishes.  If one isn't inclined to front-run, there should be some warning in the form of an impulsive wave down, though fifth waves sometimes end abruptly on a strong reversal that leaves heads spinning, so please approach this market with caution. 

On the chart below (4)? and iii? are gray because we can't know yet whether to expect them or not.  Black (B) marks a potentially complete wave: a long-term top which then leads to black (C) way down there at the bottom of the chart.

Near-term, the SPX looks to be in the process of completing wave (3) of v.  Until the All-Time-High is claimed, bears can hold out hope for a more bearish resolution, but I'm inclined to view the bears as near-term underdogs at this exact moment.  If my long-term count is correct, though, their time is coming. 

The Philadelphia Bank Index (BKX) has reached the target zone from 7/8, but also appears likely for continued upside.  I've become quite convinced we're witnessing an extended fifth wave in this index, and the concept of an extended fifth wave fits the psychology of this time perfectly.  It also fits the Fed's influence of printing so much money that the market has no choice but to keep heading up, when it "wanted" to stop rallying some time ago.  The fifth wave extension in this case is almost an unnatural move; a wave extension forced into existence by excess liquidity if you will.

In conclusion, if the long-term wave counts are correct, the market will continue rallying into the 1700's.  And while we don't want to get too far ahead of the market, it appears reasonably likely this is the final rally before the most significant correction we've seen in some time.  Trade safe. 

Is There Any Hope Left for Bears?

I've written before that fourth waves are my arch-nemesis.  As a trader, I largely avoid trading them unless I have a clear read.  As an analyst, I don't have the luxury of ignoring a market -- all I can do is what I've been doing for the past few weeks:  warn that the wave structure was unclear to me, and that, while I was leaning very slightly bearish, it was entirely possible that wave iv had bottomed at 1560. 

It now appears that was indeed the case; but I would still caution that fourth waves are known for their complexity, and the obvious answer isn't always the right one.  I'll discuss one such option shortly.  In any case, if you want to place blame for missing the exact bottom, then don't blame Elliott Wave Theory: blame me.  Wave theory had this one pegged; and had I simply stuck with my original anticipatory read of the pattern from months ago, and then more recently favored my hypothesis of an (albeit messy) ABC pattern off the high, then I would not have waffled around thinking there may be another wave down still to come -- however, at least those potentials did keep me from turning overly bearish.  In fact, once the bulls held 1608, for the near-term at least, I began anticipating that SPX was headed toward the 1640-50's. 

At both near-term and intermediate-term, this has been an odd wave structure, and extremely difficult to read.  My sentiment regarding the ambiguous pattern has been pretty well-reflected in my article titles from the past couple weeks (i.e.- "An Ambiguous Market"; "Still a Mixed Bag"; "No Clear Answers Yet," etc.).  As I wrote on June 27:

In conclusion, we're in something of a no-man's land at the moment.  The market has so far failed to reach my target zone, and has held the key 1560 support zone that I mentioned in Monday's update.  For the moment, have to at least consider the potential that the bottom is in.  If you're of a bearish inclination, I would suggest only low risk entries until we have confirmation of an impulsive move downward (which would indicate the larger trend has changed).  For that to happen, the market needs a new low -- as of right now, the long-term trend is still currently pointed upwards, and both options remain viable.  

Sometimes the market makes perfect sense; sometimes it doesn't.  We don't need to know what the market will do every minute of every day; we only need to have a pretty good idea what it will do often enough to make money.  And then -- and I think this is a key aspect that many novice traders miss -- we need to maintain the discipline not to act (and preserve capital) when things are vague; at such times, I try to limit my trades to low-risk/high-reward propositions, which I've also been urging for the last few weeks.

As an aside, the recent move in equities calls to mind a thought I've discussed previously.  I can illustrate it with a bit of personal experience:  One vehicle I've really grown to love trading is the US Dollar/Japanese Yen Forex pair.  One of the reasons I love it is because I have absolutely zero fundamental bias about where it "should" be, price-wise.  This lets me look at the charts completely fresh each day, with no fear or hope as to what I think it should be doing, or where I think it should be priced.  As a result of being able to view each pattern with complete objectivity, my win percentage there (outside of being burned on a few massive intraday gaps where my orders get filled miles away from my actual stop price -- you Forex traders know exactly what I'm talking about) is phenomenal.  The point being, if we can remove our fundamental bias and trade only what we see, it helps our performance immensely.  Most of us have a hard time doing that with equities, because we all have an opinion on whether they "should be" priced higher or lower than they are.  As much as I can, I try to look at equities without bias -- but I am, after all, half-human, so I'm unable to completely remove all bias and emotion.

In any case, all that is now "spilled milk under the bridge," as they say -- so let's get up to speed on the present. 

As I've noted over the past couple weeks, most indicators have been in the process of rolling bullish, and most have now done so.  This suggests a straightforward fifth wave rally underway, but in the interest of seeing both sides of the trade, I'll also discuss one bearish option afterwards.

First up is the chart of the Dow Jones Bullish Percent Index.  I noted on July 8 that this had flipped to a buy signal, and that signal remains active.

Next is the S&P 500 (SPX).  While a bearish alternate count is noted, we should probably assume the more straightforward wave iv and v count until proved otherwise.

The Nasdaq Composite has nearly reached the target from its recent breakout, and SPX is approaching the all-time high.  It's not unreasonable to expect some form of correction soon, assuming the market ever decides to correct again.

Bernanke to Market: Hey, I'm Retiring, This Will Be Someone Else's Mess to Clean Up

Yesterday Bernanke let everyone know that he was just joking about "tapering" QE, and that what he really meant to say was that he was considering "toilet papering" his neighbor's house, during mischief night this coming Halloween.  At least, I assume that's what he said, based on the market's reaction.  Honestly, I don't even listen to the guy anymore.

The cash market did its usual "Fed Wednesday" whipsaw action, but the cash market isn't really the market anymore, so who cares what happened during regular trading hours.  We all know that's irrelevant these days.  Shortly after the market closed, the futures shot up like a rocket, once again proving right the pundits who say that the market is driven by the economy and not by Quantitative Easing.  I assume these pundits share an apartment under a rock with the dudes in the Geico commercials.

Bulls will once again have another resistance level cleared while they sleep, and not be forced to make the painful decision of whether to sell at resistance or hope for higher prices.  There is no such thing as resistance in a Bernanke Market.

Just one chart today, because really, what is there to add? 

In conclusion, it appears wave iv did indeed bottom at 1560.  Bears' last stand is at the all-time high (which I'll probably short simply due to the risk/reward proposition) -- but nevertheless, this remains a bull market until proven otherwise.  Trade safe.