SPX and RUT: Returning to the Scene of the Crime

Today is Non-Farm Payroll day (NFP), and in the past, this day has often marked wild whipsaw markets and/or turns.  There's the potential for today to get interesting.  Since last update, SPX captured its next upside breakout target of 1993-2000.  And this morning, ES (E-mini S&P futures) had a lovely spike on the NFP announcement -- and that spike looked suspiciously like a fifth wave blowoff.  More often than not, the first direction ES heads after the NFP number is a fakeout, and ES indeed reversed hard after the initial spike.

Thus, it will be interesting to see if today finally marks a turn of fortune for the rally -- keep in mind, though, that so far, we still don't have an impulsive decline in the cash market, so talk of turns can only be viewed as speculation.  Let's take a look at the charts.  We'll start with SPX:

SPX is finally into the zone where there's some established horizontal resistance from the prior trading ranges near the all-time highs.  And then we have RUT, which has "returned to the scene of the crime":

Not shown is NYMO, which is as overbought as it's been in a long time.  Between NYMO's extreme overbought condition, overhead resistance (and the capture of my breakout target), and the propensity for NFP to mark turn days, this could make for an interesting recipe.  That said, with no impulsive declines yet, I can only speculate... but I will speculate that today at least has the potential to mark a high.  Trade safe.

SPX and NYA: Bimodal Market

Last update noted that SPX had effectively reached its 1963-70 target zone, but that:

So far, we do not have an impulsive decline from 1962.96, but the near-term pattern does appear as though it may at least need some additional downside, so it could ultimately develop into an impulse.

There was indeed some additional downside still to come, but the wave did not develop into an impulsive decline, so bears continued to remain on the sidelines.  We now have a near-term pattern that could be an ending diagonal (aka: "bearish rising wedge"), but still no impulsive declines, so we can't confirm this pattern as particularly bearish just yet, and it could just as easily be a more bullish pattern.  It can be tiring for bears waiting for an impulsive decline -- but waiting (patiently or otherwise) is decidedly less tiring than front-running ambiguous waves and repeatedly getting blown out of positions.

We're going to keep the charts pretty simple today.  First is SPX:

And next is NYA, which has inched its way past first resistance:

In conclusion, we now have a pattern which is somewhat bimodal:  Bears are hoping for an ending diagonal that is complete or nearly-so, and which leads to new lows fairly directly -- while bulls are hoping this is a classic double-bottom, which could be aimed as high as 2060ish.  As I've repeated many times over the past few weeks, the wave remains ambiguous, so the conservative course of action is still to await an impulsive decline, which will be our first solid signal that this leg of the rally is ending.  Trade safe.

SPX and INDU: Out on a Limb... Again

On February 22, I revisited some calculations, and came up with 1963-1970 as the potential target for the current wave.  On Thursday, SPX broke above 1947.20 just before the close -- then, on Friday, it gapped up to 1962.96 and reversed.  Several people have since assured me that this was "close enough" for me to call the 1963 target captured (but I still feel a tinge of guilt in labeling it "captured" on the chart below -- such is the nature of being a perfectionist).

So far, we do not have an impulsive decline from 1962.96, but the near-term pattern does appear as though it may at least need some additional downside, so it could ultimately develop into an impulse.

I'm going to step a bit farther out on the proverbial limb, and suggest the red path below as one possibility:

Finally, in order to assure that Friday marks a decent high, we're going to take a quick look at an intermediate BULLISH option.  As long-time readers know, when I've been favoring a market direction for a while, one way to "guarantee" that the market will indeed head that direction is for me to finally publish a chart that discusses the other side of the trade.  (I say that facetiously, but it works more often than not!)

In conclusion, the overall wave remains ambiguous, and bears still don't have a truly impulsive decline to hang their hats on.  The 1963-70 zone has provided at least some degree of resistance so far, but it remains to be seen if that resistance will be short-lived or not.  Another smallish wave up would be okay for the immediate bear case, but a sustained breakout would call for bear caution.  Trade safe.

SPX, NYA, INDU: Title Good 'til Cancelled (Unlike Stop Orders)

Last update noted that SPX finally formed its first impulsive decline since the rally began, and that "this is as good a signal as bears have had since the bottom at 1810."  Unfortunately, that impulsive decline was simply wave A of an ABC correction, and wave C bottomed shortly after the open.  Still in all, bears who waited for that impulsive decline were able to avoid shorting into the first 100+ points of rally, so things could certainly have been worse.  Not every signal works perfectly, especially in a market as vague as this one, but as long as one manages risk and maintains discipline, then one can hopefully avoid catastrophic damage to one's account at the times when the market runs the other way.

Since then, SPX was able to break 1947, which at least eliminates some options from consideration.  This is a tricky position now, because the larger count isn't 100% clear-cut -- but this break of 1947 certainly isn't entirely unexpected.  Let's look at a few charts, starting with SPX:

Zooming out a bit on SPX, let's finally update the bigger picture chart (you know the chart I mean -- it's the one where I basically said "my work here is done" back on January 21, and haven't updated since):

NYA is still below resistance, and looks to be entering the zone we anticipated:

Finally, INDU:

In conclusion, IF this is a fourth wave (and that's always an "if," since we know to "never bank on fifth waves"), then this pattern fits the expectations of a flat correction quite well.  The challenge, of course, is that classic technical analysis would view this as a bullish double-bottom pattern, and project it to run approximately the width of the initial pattern (about 100+ SPX points higher from here).  Until we see some key price overlaps from this rally, I'm more inclined to think it's simply a complex fourth wave, and will be interested to see how SPX reacts to 1963-70.  Of course, there are no guarantees in an ambiguous market, so the more conservative path would be to await an impulsive decline, which provides both more information, and a clear level to act against.  Trade safe.

SPX, INDU, and Stockcharts Errors: Bears Get Their First Real Chance Since 1810

Since last update, SPX and INDU have both reversed from upside inflection points in apparently-impulsive declines.  This is as good a signal as bears have had since the bottom at 1810.  Thus, the level for bulls to beat remains 1947.20 SPX -- but unless that happens, it appears that bears just took the ball back.

Unfortunately, I've had a lot of trouble with Stockcharts.com tonight -- the site has crashed several times, and I've lost some of my annotated charts, because they're not uploading properly.  Let's take a quick look at Stockchart's version of the SPX chart:

Oh yeah, that one crashed after I spent time annotating it, and it never uploaded at all...  Hmm, okay, let's take a quick look through one of my Stockcharts chart books instead:


Ugh, that's not much help either.  Luckily, after considerable effort, I was able to get one (count it: one) chart loaded and saved for today's update:

And after going back and trying again just now, I was able to quickly annotate an additional chart, which had to be kept simple by virtue of time constraints:

In conclusion, we have our first impulsive turn since the rally began at 1810.  This in itself doesn't guarantee that the rally is entirely complete (the impulsive decline could be wave A of an ABC correction), but it's the best signal bears have had since 1810.  INDU has developed into the structure discussed on February 15 (a 3-3-5 flat), and turned right where wave C of (4) was charted (originally shown all the way back on February 8).  My main lingering concern is that it's still technically possible that this decline is only a correction to a still-larger ongoing C-wave rally -- but bulls are going to have to prove that with a breakout over 1947.  As noted, this is "as good as it gets" for bears at this stage.  Trade safe.

SPX and HYG:TLT: Still an Uninspiring Market

Something I've tracked regularly for the past few years is the ratio of HYG:TLT.  TLT is the iShares 20+ Year Treasury Bond ETF, while HYG is the iShares iBoxx High Yield Corporate Bond ETF (HY obviously stands for "High Yield," but there's no indication anywhere as to what the "G" stands for -- so my personal theory is that HYG stands for "High Yield Garbage").  I track this ratio because, theoretically, it should help give warning when smart money is moving from risk into perceived safety, and vice-versa.

In practice, this ratio flashed early warnings throughout 2014 -- but it wasn't until early-2015 that I felt (and wrote) that it was "finally... time for equities to pay the piper, and reconcile this divergence with a downward correction."  Given what's happened since, I believe we can safely say the theory worked quite well.

With that little bit of background, let's update where HYG:TLT stands today.  We can see that, as of this moment anyway, bulls appear to have their work cut out for them.  There's simply nothing intermediate bullish about this pattern -- although, for the near-term, a back-test of the broken black support line wouldn't be terribly surprising:

From an intermediate standpoint, nothing has changed, and I still expect we've got lower prices pending.  From a near-term standpoint, nothing has really changed either, and the near-term remains ambiguous.

Despite that, I've taken a look at the charts with fresh eyes this weekend, and decided to step out onto a limb that probably can't support my weight.  Just be aware that the target shown below is not my usual type of "higher confidence" target, and more of a zone to watch carefully if we reach it:

In conclusion, the intermediate-term remains bearish in appearance, while the near-term remains ambiguous.  Regular readers will recall that I've felt the near-term appeared ambiguous for the past four weeks (starting on January 21, immediately after SPX captured its downside targets) -- and, in fact, the market has remained range-bound ever since.  The market generally oscillates between trending waves and cycling waves, and sometimes about the best you can do is simply identify when it shifts from one phase to the other.

From a near-term perspective, we're still below the wave (2) invalidation level, so the market has kept open the most immediately-bearish options for the time being.  Essentially, nothing has changed since Thursday:  If we see an impulsive turn from here, then we'll have our first clue; if we don't, then the pattern calls for continued patience for bears. 

Frankly, I'm growing a bit tired of charting this wave of the past four weeks, but it is what it is.  As I see it, the pattern is most-likely a bull trap -- just be aware that sometimes in order to be a good bull trap (and bear killer), a wave needs to run higher and longer than seems reasonable.  I genuinely don't know if that's what will happen here or not, which is why I'm still awaiting a clear impulsive decline.  Trade safe.

SPX Update: Market Reaches Inflection Point

Last update, I noted a few important points regarding the current rally, and I'd like to briefly revisit some of those.  First:

Regarding the chart above, I'd like to note that this pattern allows for a lot of leeway at either inflection point: Blue 2 can't be fully eliminated until 1947 is claimed, and black C only needs to be higher than 1947, but could also run even higher than shown.  This is the type of pattern where we'll have to play it by ear in real time, and watch for a turn that's followed by an impulsive decline -- that would help with early confirmation that it's "the" turn.

and:
  
...front-running should be done only with extreme caution.

I'm highlighting those points because I also talked about this as a "sucker rally," and mentioned that it appeared a significant decline could be pending upon its completion.  The reason I also wrote the italicized portion (above) into that update is because "sucker rally" does NOT mean we should ignore the present.  At present, we have a strong rally of an ambiguous nature with unclear targets.  At times like this, I believe it's important to have patience, and not get too far ahead of the price action.  In fact, even though these updates are almost entirely forward-looking, I don't believe we ever need to get too far ahead of the present.  Why?

To answer that, let's start with the chart below.  Even in a market as ambiguous as this has been, you'll recall that the market told us that a rally was at least a 50/50 probability after a retest of the low (and it told us this back on February 8, before we had even retested the low!  See chart below.).

After we saw a rally begin from the black B inflection point, we had our first solid clue that it was time for shorts to be cautious -- and immediately thereafter, we knew we were up against a C-wave rally (recall that C-waves are third waves, and therefore almost always strong trending waves) -- in this case, a C-wave of indeterminate wave degree.

The point I'm getting at is that even in a market as vague as this one has been all month, we still had solid signals from the market that told us, in order:

1.  That we should expect at least a retest of the low.
2.  That said retest of the low had at least a 50% chance of marking a bottom.
3.  That any pending rally from said bottom would be strong.
4.  That a C-wave rally (of indeterminate wave degree) had begun off the retest.
5.  And not to short randomly into that rally -- i.e.: not to front-run, but to await an impulsive turn.

In other words, I don't believe we need to get too far ahead of things because the market usually guides us along the way.

With that thought in mind, let's look at the SPX chart in order to better visualize where we appear to be now, and to visualize some of the potential dividing lines heading forward:

As we can see on the chart above, the rally still has many options, which is why more cautious traders will watch for an impulsive decline -- although nimble traders will likely note that we've now pushed pretty far into the blue (2) inflection point and are pretty close to its invalidation level (and if I have to explain the significance of that, then you're not a nimble trader and you should just ignore that statement entirely).

In any case, until we see an impulsive decline, I simply can't make a clear call as to where this rally will end.

Briefly, here's one more chart of interest.  I've shown this trend line before, and it's worth noting that "here we are again":

In conclusion, we're well into the blue (2) inflection point, so from a structural standpoint, this is one zone that could end the rally, and the R/R is much better than it was in the last update -- however, that is NOT TRADING ADVICE, because this pattern is ambiguous, so I simply don't know if the market will view this price zone as significant or not.  If we see an impulsive turn from here, then we'll have our first clue; if we don't, then the pattern calls for continued patience for bears.  Trade safe.