SPX Update: A Detailed Look at the Current Micro-Count

Last update anticipated that bulls were unwinding a fourth wave, and the micro count suggested a completed abc expanded flat.  Well, that micro count was correct, however, the market decided that one abc wasn't enough -- so it tacked on another abc to a slightly lower price.

This means that either that correction can now be compartmentalized as a wxy (which breaks down as "abc-x-abc") and a fully completed wave structure -- OR -- the expanded flat is still unfolding as a more complex wave, and the low at 2441 was wave (b) of that more complex expanded flat.

This has become a very challenging micro count for that reason, but the good news is that the first two leading contenders both have similar outcomes:  They head a bit lower, then rally back up to new all-time-highs. 

There are also two outlier counts:  First is the possibility of a subdividing fifth wave, which would be quite bullish and would become the leader on a direct sustained breakout over 2556;  second is the possibility that the rally is over for now, and there are no more fourth waves to unwind at micro wave degree.  We'll burn the bridge on the second option if we come to it (if the market follows the black path below, then I'll discuss the more bearish option in added detail next update)

I've outlined the two "leading contender counts," which both head lower first, then head back up to new highs, on the chart below.  Keep in mind that these counts are shown conservatively, and could head lower than shown.

On the bigger-picture chart, SPX indeed found support at the black trend line I'd mentioned.  If the "leading contender" counts discussed above are correct, then we might get a whipsaw beneath that trend line in the upcoming sessions:

In conclusion, the decline from 2555 looks impulsive, so it's reasonably likely that we'll head lower over the upcoming sessions.  From the looks of things at the moment, that won't be "the end of the rally," though, it will just be part of a more complex correction.  Since the two leading counts are both at least near-term bearish, I'll simply note what to do if that's wrong:  In the event we were to immediately sustain a breakout over 2556, then we might be dealing with a subdividing fifth wave, and bears might do well to stand aside until that clarifies.  Trade safe.

SPX Update

Last update assumed that Friday's decline would be a corrective fourth wave, and so far we don't have a definite answer from the market on whether that was correct or not.  Let's look at a near-term chart first, to see how this move breaks down:

No change to the bigger picture, except to note that the decline found support a bit higher than the noted trend line.  This suggests that either buying pressure was too strong for SPX to make it "all the way down," or the decline was in fact wave 1/a and we'll tag (or break) the trend line on the next wave down.  Either way, I am still inclined to think the rally has at least a bit farther to run.

Over the weekend, a reader asked why wave 3 on the chart above appeared to be the shortest wave.  It appears that way simply because the chart lacks the level of detail needed to see where wave 1 actually ends, and thus to see that 3 is not the shortest wave. 

Below, I've drawn up a quick, more detailed look at the wave structure.  As we can see, wave 1 appears to have had what Elliott referred to as "an irregular top" -- or what we would refer to as "an expanded flat."  The actual price high appears to be a B-wave, while wave 1 appears to end prior to the price high:

In conclusion, I'm inclined to think that Friday's dip was wave C of an expanded flat, and thus that the rally is still underway.  It is a little tricky, because the decline was impulsive, so there's only a narrow margin for error here.  If the prior high at 2552 wave is not a B-wave, then Friday's decline was only the first leg down of either a two-legged correction or the start of something more significant.  Bears are of course free to ignore my interpretation, and act in whatever manner their conscience dictates.  Trade safe.

SPX Update: Short and Sweet

We're just going to focus on SPX today.  SPX has exceeded its target zone slightly, and future this morning are red on the back of the bad jobs number.  Despite that, I'm not entirely convinced that the rally is over yet, because it still appears to need some 4/5 unwinds.

I'm not completely closed to the possibility that it's over, but I'm taking a "wait and see" stance for the time being.

In conclusion, ES futures are trying to convince everyone that the rally's over and done with, but we may just be seeing a normal back-test of the upper boundary of the black channel, so it may not be as bearish as it looks.  We'll see how things shake out here over the next session or two and reassess if necessary.  Trade safe.

SPX, INDU, RUT: To Blow-Off, or Not to Blow-Off? That is the Question.

Last update noted that it appeared the rally still had farther to run, and that SPX was inching its way toward its upside target zone.  Yesterday, that target zone was captured.

So now the question becomes "is it close to being finished?"  And the answer is:  It looks like it still has some fourth and fifth wave unwinds yet to do, so it's probably not entirely over yet.  And given the structure of the entire wave, there is a genuine possibility of an extended fifth wave, so bears are going to want to be careful until the market declares that extended fifth wave potential is off the table.

RUT also allows for a similar possibility:

And while it's a bit harder to find such a possibility in INDU, I have to assume it's still present here, since it's present on RUT and SPX, and even on BKX.

INDU has come very close to the perfect "perfect world" target of 22699, and here again, it does appear that there are probably some fourth and fifth waves left to unwind, so that target is quite do-able, and possibly even too conservative.

In conclusion, it appears likely that the rally has at least a little farther to run, due to the fact that it seems to still have a few fourth and fifth waves to unwind.  We also have to be aware of the potential for an extended fifth, which, outside of technical analysis, is also known as a "blow-off top."  Thus the best thing to do for the moment is await an impulsive decline before getting too bearish.  There are times I can advocate front-running a turn, but it's difficult to do so now, with the market in this position.  Trade safe.

SPX, RUT, INDU: SPX Closes in on 9/13 Target Zone

It's recently occurred to me that it's been a REALLY long time since I discussed the basics of Elliott Wave Theory, and/or technical analysis in general -- so anyone who's started reading in the past few months may be totally lost.  Accordingly, here's something I haven't posted in as long as I can remember:  If you're new to Elliott Wave Theory, you might want to check out my brief primers (HERE).

SPX has continued heading toward the 9/13 target zone of 2534-42.  So far this has happened without any real surprises, since blue 4 bottomed where expected and then remained relatively straightforward.

RUT has continued to move in a parabolic fashion, and is trying to break clean away from its old megaphone pattern.  Sometimes markets will back-test the upper trend line of the megaphone after a breakout, but it's not guaranteed with a move like this one.  If we see an impulsive reversal, we'll attempt to determine if that's headed toward a back-test.

After INDU's brief "false start" lower in August, where we watched for bearish overlap that never came, it resumed its rally, and has now reached the lower edge of the "perfect world" target zone mentioned on 7/14.  Although, the perfect "perfect world" target is 22,699, so I'll be curious to see how close that comes.

Here again, there's nothing in the charts yet indicating a reversal, so bears may want to continue to show patience, despite the alluring (to bears) proximity of the "v" label.

In conclusion, while it appears that we're inside a fifth wave rally, that wave appears it still has farther to run.  It is also always possible for a fifth wave to extend, so bears will want to exercise patience for the moment, and await the first impulsive turn.  If you've been a long-time reader, you know that we don't miss many when it comes to impulsive turns -- in other words, typically we spot the first one and accurately anticipate the next one before it arrives, so there's really no need to jump the gun.  It's better to miss the exact top than to go broke front-running a turn.  Trade safe.

SPX and RUT Updates

Last update noted that we were giving the edge to bulls, and SPX indeed made a new all-time high from there.  It's been chopping around a lot since then, so we have to at least consider the possibility the blue wave 4 may be becoming more complex and could still be unfolding.  I've noted that possibility on the chart below:

We haven't looked at RUT in a couple weeks, and since last update, RUT has validated its preferred count.  This current rally has the look of an extended fifth in RUT.  Extended fifths tend to be absolutely relentless while they're underway, then they reverse abruptly and sharply.  But they do typically offer at least one retest of the prior high after that first sharp reversal, so if that occurs, we should have a chance to catch up with the reversal on its first strong bounce.

In conclusion, there's still nothing that's particularly bearish about the charts.  SPX could take a short-term detour if it wants, but presently we'd expect that to simply be part of a correction.  Trade safe.

SPX Update, and Some Fundamentals at a Glance

The last two updates suggested SPX would probably test the 2490 zone, and in the most recent update I stated:

I will throw my hat in the ring and say that I do suspect Friday's low will be broken in reasonably short order, because it looks very much like a B-wave. 

Friday's low was broken, and SPX headed to the 2490 zone (2488 to be exact).  From there, it bounced relatively strongly.  Right now, that bounce up has only been three waves, so it's not out of the realm of possibility that SPX will turn back down from here.  If the bull wave count is unfolding, then there aren't enough waves up in place yet, so we probably have to lean toward the idea that the market will hold that low and head higher -- particularly if SPX sustains trade north of 2504.  But that's not a given yet, due to the potential of black "alt B" and "alt C" on the chart below.

So, while I've noted the bull count is currently an incomplete structure, if the bear count is underway, then the current rally is instead already a complete structure.  So although I'm leaning toward the bulls, bears still have an out:  If the 2488 low fails, then we'll have to give serious consideration to the bear count.

I'd also like to share a fundamental chart that I found interesting.  The chart below show the SPX in comparison to Durable Goods Orders.  As we can see on the chart, the two have correlated almost perfectly over the past quarter-century -- up until recently, that is. 

Ever since the 2015 correction ended, SPX has continued to rally strongly, while durable goods orders have remained range-bound.  There are no other examples of this happening anywhere else on the chart, so how long this situation can continue is anyone's guess.  (It's already gone on for about a year and a half.)  But it does suggest that valuations are probably a bit too frothy, and this might fit with our expectations that a larger fourth wave correction is relatively close.

Interestingly, it was just announced that durable goods orders jumped 1.7% in August, so I suppose it's possible for durable goods to start catching up with SPX.  As I mentioned, there are no other examples similar to the recent past, so we don't have a precedent to draw from.  But I found the chart interesting either way.

In conclusion, SPX tested the expected 2490 zone, and has (so far) bounced from that zone.  As long as bulls continue to hold that low, then we probably have to give them the edge, if for no other reason than the simple fact that it's a bull market, so they don't seem to lose many of these battles.  But in the event SPX sustains a breakdown at 2488, then we'll have to shift the edge to bears for the near-term.  Trade safe.