Inflection Point

Today, we're going to take a quick look at some long term charts.  The first is the Dow Jones Industrial Average Ordinary Mediocre (INDU-OM).  If INDU doesn't find support soon, it will leave a very bearish candle on the monthly chart.

Next is the Filthy-delphia Bank Index (BKX), which also needs to find support here, in order to stave off disaster.  Note the alternate count in black is still viable, since the wave (1) high remains unbroken.

I'm seeing mixed signals in the near-term charts.  The decline appears to have formed a clean abc or 123 now, which means the market may have started a larger retracement rally yesterday, and bulls still have potential for a stick save to new highs.  Trade below yesterday's low would begin to hint at a five wave decline, while trade above yesterday's high would suggest a larger retracement rally underway.

In conclusion, the market has reached an potential inflection point, and could put together a larger rally from here.  Trade safe.

Apple Reaches July's Target Zone; Dow Hints at Intermediate Trend Change

There's a surprising amount of complacency in the market at the moment.  Recent sentiment polls indicate that most people feel this is just a run of the mill correction and aren't the least bit worried about it turning into anything serious.  That's not a terribly good sign for bulls, since it means the market will, at the very least, probably need to shake them up pretty badly.  The "easy" move in trading is almost always the wrong one -- and if it's still easy to buy the dip, it's probably not the right move.  It will be the right move when it feels like it's the dumbest thing in the world.

The anticipated intermediate trend change may have begun a hair sooner than I'd have liked to see in a perfect world, but it's simply not possible to hit every target, and the final target fell about 10 points short.  Nevertheless, I hope I gave adequate warning on August 13, when I wrote:

I believe the downside potential exceeds the upside potential relative to current price levels.  While the near-term still allows for another wave up to new highs, I would be quite surprised if bears don't win this battle at intermediate degree.  Hopefully that helps clarify my current stance, and it represents a material shift of my long-term stance in January.  I'm no longer long-term bullish, but am now in "sell the rallies" mode until proven otherwise.

The decline so far is only three waves, so an intermediate trend change hasn't been confirmed.  Once we have a full five wave decline, that should be confirmation, and tell us to expect a rally, then another decline of equal or greater length.  Despite the non-confirmation, the early signs point to a trend change.  The Dow Jones Industrial Average (INDU) has reached the breakdown target, and I went on record August 13 saying that if the first support zone failed, my expectation was that the second one would be reached, and would fail as well.  The first part has come to pass, and the moment of truth is here for the second half of that prognostication.

Of note is the fact that INDU has overlapped the wave (1) high, which rules out a low-degree fourth wave for INDU.  The projected path is unchanged from 8/13.

 
Bulls need to keep the decline as a three-wave form to continue their intermediate hopes -- so unless they reverse the market immediately, it appears S&P 500 (SPX) will fail to reach the final target.

Russell 2000 (RUT) did reach its target from February, and we can see a three-wave decline here as well:

Understanding the Market's Conflicting Signals

In the last couple updates, I've waffled a bit on whether there will be another wave up or not -- my apologies if I've confused anyone.  The simple fact is, there are conflicting signals across markets right now, and frankly I'm feeling a bit flummoxed trying to parse the information at the moment -- so I'm going to share some of the things I'm seeing and let readers draw their own conclusions.

One of the most telltale patterns in Elliott Wave is called an expanded flat.  Expanded flats consist of two 3-wave structures, followed by a five wave structure.  The first 3-wave move runs counter to the previous trend, the second one runs with it, and the third wave runs against it and is virtually always the longest and fastest.  Here's the key with expanded flats: that second three wave move (in the direction of the trend) actually exceeds the previous high or low.  In other words, in a bull market, that means the correction makes a new high.  The diagram below depicts an expanded flat (on the right side; to the left is a standard zigzag correction).

 
Expanded flats offer clues toward projecting the market's next move.  Back in November of 2012, the apparent three-wave rally into the prior high is the main thing that kept me looking in the right direction, and anticipating that decline would be bought and ultimately make new swing highs.  We all know how that turned out.

One index is currently flaunting a quite brazen three-wave rally into the most recent high, and that's the index whose abbreviation actually sounds like "index":  the NasDuck 100 (NDX).  The pattern in NDX screams expanded flat -- and with this pattern in place, it's really hard to imagine the final high is in.  Assuming Apple (AAPL) continues up into my next target zone of 510-530, perhaps that will be the catalyst which drags NDX to another high.  To the downside, wave (4) is not allowed into the price territory of wave (1), therefore the wave (1) peak is the invalidation level for blue wave (4).
 

Then there's the NYSE Composite (NYA), which is the market that's recently thrown me onto the waffle train.  NYA has thus far failed to exceed its May high, which is the minimum expectation of a fifth wave.  Failed fifth waves (where price does not exceed the previous high) are rare; statistically speaking, the odds of a failed fifth are perhaps 1 in 80 -- so, purely from an odds standpoint, we have to put this index in the "one more high" corner as well.

Almost Everything Is Lined Up for the Bears

For the past couple weeks, I've done my best to avoid trying to make a firm prognostication of the near-term as long as the market remained range-bound.  As of this morning, it appears the market is ready to break down from the apparent head and shoulders top.  I've made my intermediate bearish stance pretty clear, but we're presented with a lingering conundrum regarding the short term.  The NYSE Composite (NYA), which is a fantastic representation of the market as a whole, has thus far failed to best its May high.  

The purpose of a fifth wave rally is to break the high of the previous wave; and the vast majority of the time, that's exactly what it does.  In rare instances, the market will experience something called a "fifth wave failure" -- which, as the name implies, is when the fifth wave fails to exceed the high of the prior wave.  Fifth wave failures are impossible to predict in advance -- in fact, their very nature is to be the exception to the rule.

Outside of NYA's failure to make a new high, the patterns in most other markets look bearish.  After several weeks of top-building, it's difficult to image we'll see a short-lived breakdown.  Everything seems to be lined up for a sustained intermediate breakdown -- except for the lingering doubt created by NYA's failure to make a new high.  I obviously can't be certain what will happen here, but because of NYA, I'm going to at least keep an open mind to the possibility that we'll see a relatively short-lived breakdown, then a new high to complete the expectations of wave v -- and then the more serious intermediate bear move.  If it weren't for NYA, I'd say fuggedaboutit, bears will run straight to the end zone. 

Despite NYA, the preponderance of evidence seems to favor the bears for the time being, so that's the direction I"m going to lean.  It's entirely possible that NYA did indeed form a failed fifth, which would suggest a very strong bearish market to come.  I'll track both options heading forward.

The S&P 500 (SPX) notes the apparent near-term count, and some preliminary targets.

In the big picture view, I continue to feel that no matter how the near-term resolves, the bears are about to take control of the intermediate picture.

SPX and Apple Update: Icahn Joins Us on the Apple, Inc. Long Play

Lately, charting the S&P 500 (SPX) has been about as enthralling as reading a washing machine instruction manual.  It's continued to trade inside a seemingly endless, whippy range, leaving us free to imagine whatever patterns we want.  Thankfully, all is not lost for those of us who write about these things: Apple (AAPL) has been a big hit since I recommended it as a long play on July 8, and continues to please those of us who are invested in the high-tech fruit.  Apple made a convincing breakout over resistance yesterday on impressive volume.

Apple's now bumping against resistance from the (assumed) A-wave low.  This is an important resistance zone, since overlap of that price zone would suggest a three-wave decline -- and that would mean the decline was corrective, which would then suggest Apple is ultimately headed back into the 700's.

Some folks believe that technical analysis is a bunch of silly mumbo jumbo -- I would point at my Apple charts of the past few months as a strong hint to those folks that they're missing out on a powerful trading tool.  I first called attention to Apple back in May, and it rallied briefly thereafter, at which point I told readers I would not want to remain long if it traded below 442.  It did so, and then proceeded to drop 50 points.  From there, I projected the the dip on July 8, which I recommended as a buy, with a first target of 460-480 -- and the rest is history.  All of this has been done simply by reading the charts.

Obviously, I didn't have insider information allowing me to project that Apple would jump 5% on its earning announcement, and another 5% on Icahn's buy recommendation.  There was no way I could know these things -- but someone was buying (and we now know at least one of those big players by name), and that buying left patterns in the charts which pointed to higher prices.  As I've asserted for many years:  the charts lead the news.  If you're lacking technical analysis in your trading arsenal, you're missing a fantastic tool.

As noted, bulls aren't entirely out of the woods just yet, but given yesterday's solid breakout, the picture continues to look promising.

In reviewing my chartbook tonight, I realized a minor oversight on the NYSE Composite (NYA).  NYA hasn't broken the May high yet.  I've been leaning toward the idea that there would be another wave up to wrap up the pattern for the near-term, and this realization puts me more strongly in that camp.

Intermediate term, I continue to believe this is will mark the final wave before a solid correction.  The Dow Jones Transportation Average (TRAN) looks to be in the process of forming a topping pattern.

Market to Bulls: "Pay Me Now, or Pay Me Later"

The market has continued to trade within the noise zone, and the question remains whether all of wave v is in or not.  For a bit of perspective and clarity, I'll break down my view on what each time frame holds for bulls and bears heading forward:

1)  Near-term, I'm not certain if the rally has put in the final thrust or not.

2)  Intermediate-term, I believe the market will see a significant correction or worse.  The question is whether that correction begins directly, or begins from slightly higher prices.  My February target of the mid-1700's hasn't been negated yet.  Whether that target is reached or not, I presently expect the market will ultimately end up trading below current prices over the intermediate term.

3)  Long-term, we may or may not have another  fourth wave decline and fifth wave rally to unravel, and we'll have to unravel that question at some point in the future.  The potential exists for a major long-term top in this zone, and I'm presently a bit more inclined to favor that view. 

In any case, I believe the downside potential exceeds the upside potential relative to current price levels.  While the near-term still allows for another wave up to new highs, I would be quite surprised if bears don't win this battle at intermediate degree.  Hopefully that helps clarify my current stance, and it represents a material shift of my long-term stance in January.  I'm no longer long-term bullish, but am now in "sell the rallies" mode until proven otherwise.

I've chosen the NYSE Composite (NYA) to help illustrate why I feel this way.  As I see it, the best-case scenario for bulls right now is a running triangle, which leads to a final rally wave.  Worst case for bulls is the top is in already.  Bears win both those battles at intermediate degree, but may want to await a breakdown in order to maximize probability.  In other words, I'd be inclined to sell either at higher prices or at lower prices.  Taking action directly in the middle of the noise range amounts to a coin flip.

 The S&P 500 (SPX) near-term chart illustrates essentially the same conundrum, from a near-term perspective.  No clear break has left myriad near-term potentials.

From higher elevation, the big picture seems more clear.  The question remains whether red wave v is complete or not, but I would presently expect the downside targets should be realized either way.  The first target of the most bullish count at intermediate degree is the low 1600's (shown by gray wave (4)).  The most bearish count has a final target near the 2009 lows.

No Title for You! One Year!

I spent some time studying charts this weekend, but ultimately there's really very little to add from last update, since the market remained within the noise zone on Friday.  So I've created a chart which will hopefully help readers better understand the big picture outlook.  The chart annotations pretty well explain my thinking at this point.  I've used the INDU for illustration, but SPX would be expected to follow a similar path.

On SPX, there's been no change, and we're still watching to see if the pending bearish sell trigger is tripped.  Despite the fact that ES is about 6 points in the red right now, I wouldn't be surprised to see SPX rally back toward 1700 at the open.  If it instead heads down directly from here, watch for a solid sell off. 

In conclusion, we're still in the noise zone, so there's been no change from last update, and I still feel a breakdown here would likely suggest the beginning of a much larger correction.  Trade safe.