SPX and INDU: Bears Want More Credit

Last update discussed the potential pattern in BKX, and that the bear options had to be given at least even odds.  And now we may have to go one notch further and shift preference to the bears here.  INDU made a new low yesterday, so the only way its downward decline could be complete is if it's a double-zigzag.  So, it's not impossible for bulls to hang on here, but the new low makes it less likely. 

INDU's new low yesterday looks very much like a b-wave, suggesting a near-term rally, perhaps to fill the gap.  And then another leg down:

I've adjusted SPX's chart to match the message from INDU, so while there are still three possible counts out of this mess, we probably have to give at least slight odds to the bear counts:

In conclusion, while I've drawn rather specific paths on the two charts above, I do want to caution readers against becoming too attached to those paths.  We have been in an extended chop zone for a month now, and predictions drawn from chop are the hardest to make, and the most likely to fail.  That said, I will commit to saying that I think we have to tilt the balance to the bears for another leg down.  The nice thing is that if we get the rally shown on the charts above, there will be a low-risk entry zone in the near future -- and given that we're hoping black (2)/B will put in a decent near-term rally, an invalidation (if it's not (B)/2) won't cause too much pain.

In the event the market continues to rally past the black (B)/2 on the above charts and makes a new all time high, then such a move could still be part of black B, but (2) would be off the table.  Conversely, in the event that yesterday's low fails immediately, then we have to stay aware that (B)/2 could already have completed as a running flat -- though the ultimate head-trip would be for a breakdown that then rallies up to (B)/2 before dropping for real.  And I wouldn't put that past this market at all. 

In any case, the downside potential for this pattern currently stretches as low as 2480-2500, though will likely have to be adjusted once we see where the final high for (B)/2 actually is -- if that's indeed what's unfolding.  Trade safe.

SPX and BKX: The Plot Thickens

Friday's session accomplished nothing in SPX, but we do have an interesting development in BKX.

The last time I updated the BKX chart was in July, and I noted that I was inclined to think red iv was still unfolding.  Since then, I've been wondering about the wave structure here, because blue V should be an impulsive five wave rally, and it has had the appearance of 3 waves instead.  That leaves open the potential that the most recent rally in BKX was not part of wave V, but was instead the still-unfolding wave iv.  The new high in 3-waves would fit the expectations of an expanded flat, and suggest a trip back below the a-wave low.

I can't rule out the idea that wave V is still underway, but the expanded flat would fit quite well here, so we have to give that even odds for the moment:

Now, if wave iv is still unfolding in BKX, then that would suggest a decent decline is pending there.  And that would likewise have implications that SPX is also still working on a large fourth wave, which is represented by the bottommost black 4 on the chart below -- but could easily run lower than shown (and probably would, in fact).

These types of moves are quite challenging to anticipate, because there really is nothing to differentiate them until they start breaking up or down -- but we are at least wise to the potential fairly early in the game, especially relative to the ideal size for this wave.  As I warned last update: If SPX sustains a breakdown at blue C, that would have to be viewed with extreme caution.  And now we have one more reason for thinking so.  The classic target for an SPX breakdown would be 2537 +/-, but that could easily run into the 2400's.

The biggest challenge when you start dealing with expanded flats is that you cannot bank of a fifth wave at the anticipated C-wave decline -- because that "expected" c-wave could instead be another b-wave, and end up as three waves that lead to another up/down sequence.  So please keep that in mind in the event of a sustained breakdown.  The good news is that even if the decline were to be another b-wave, we should still theoretically be able to bank on a wave of at least equal length to the first leg down, likely longer.  Trade safe.

SPX Update: Far from Clear-Cut

In the prior update, I warned of the potential for an expanded flat, and the market dropped to within 2 points of the expanded flat target zone.  But it didn't quite get there, and that leaves some questions on the table.

First, let's look at the longer-term chart.  Readers will recall where black "alt: ii" was the last time I updated this chart (hint:  it was right where "red ii" is now):

In a perfect world, that would be it, and everything would be wonderful from here on out -- but this is not a perfect world.  There are markets where you can say, "Oh yeah, that's it, we're now headed to X..." -- and then there are markets like this one.  This is an anti-complacency market right now, as we'll see on the chart below:

In conclusion, there are still plenty of ways for this market to cause pain, not the least of which would be the aforementioned ending diagonal.  The thing that bothers me is that blue C looks more like a 3-wave move than an impulse.  And it's supposed to be an impulse.  If I really stretch my brain, I can find a way to count it as an impulse, but we have to at least consider that maybe it simply isn't -- which would mean that it's the ABC of wave I of a diagonal, or it's the ABC it appears to be, to mark black (A).  Or, and here's one for the bears... or it's part of a bear nest.  This is why any sustained breakdown at 2566 would have to be treated with extreme caution.

The first warning on the chart above would be a sustained breakdown at the blue trend line -- if that fails, then 2566 would have a good chance of failing as well.  Trade safe.

SPX Update: A Couple Near-tem Options

Last update expected higher prices after a morning dip:

I suspect SPX will decline at the open, toward 84, and potentially as low as 80-81, before rallying back up.

Turned out I was off by a point, and SPX declined to 85 before resuming the rally.

We've now reached a somewhat odd inflection point, inasmuch as I don't see much potential for a long-term top here, but I do see potential for two possible near-term corrective structures.  I've drawn a chart to show the potentials, as well as to discuss the relevant levels for each:

While I don't see much potential for a long-term top in the charts, Dennis Gartman did just announce that he was finally turning bullish -- so we should be aware that a sudden crash of at least 2590 SPX points is not entirely out of the question.  ;)

In conclusion, basically, as long as the zone near yesterday's low holds, then we have to presume bulls still have the ball across all time frames.  If we instead see a sustained breakdown at the blue trend line on the chart above, then we'll have to consider that perhaps red wave 2 is still underway via the blue ABC.  Trade safe.

SPX and Oil Updates

Last update noted that the preferred bull count was hinging upon the (then) all-time high appearing to have been a b-wave, but that I was favoring the bulls by a 60/40 margin.  That turned out to be correct, as SPX just barely made a new all-time high on Friday.  This continues to leave the edge (note: not the guitarist from U2) with the bulls, so bears are reduced to mere near-term hopes yet again, as shown on the chart below:

And while "alt: ii" is a genuine possibility (the near-term bear hope), I'm not inclined to favor that at the moment (hence the "alt" designation).  I'm more inclined to think the correction has burned enough time (and enough traders) that it's ready to break and run toward red iii.  However, given how much of a pain this market has been, I'm not implying that I'm dismissing "alt: ii" entirely (I wouldn't have placed it on the chart if I were), I'm just less inclined to think we go that route.

For what it's worth, I suspect SPX will decline at the open, toward 84, and potentially as low as 80-81, before rallying back up.  If we sustain a breakdown at 77, then alt: ii will be on the table.

Moving on from equities, I need to update the oil chart for readers, because oil has broken its previous high, and that alters the picture somewhat.  In the last update, I had "alt: bull b" at the 42.05 low, and that is now a more distinct possibility.  It appears that the wave that was previously labeled as blue abc with a c-wave diagonal may instead have been ALL OF A, which was a leading diagonal instead of an ending diagonal (it's almost impossible to differentiate the two in real time, because they often have the same micro structure). 

However, all is not yet lost for bears from a mid-term perspective, because there are a couple other options for wave B -- so I've outlined two important upside levels on the chart.  Bears should take blue C seriously if the market sustains a breakout over those levels.

In conclusion, SPX has confirmed my call that the 2588.40 high was a b-wave, which likely puts us in a small third wave rally.  The bear option simply forestalls that rally by stretching red ii sideways a bit farther.  Trade safe.

SPX and INDU: Market Pulls a Sneaky

First of all, I want to warn against complacency here, because while this outlook is bullish, there are enough waves in place for a complete rally -- so the bull/bear scenario hinges on a wave that I'm interpreting as a b-wave.  If it's not a b-wave, then we'll break yesterday's low prior to exceeding the all time high, and hence 2566 is the "all bull bets are off" level.

That said, I'm favoring the bulls by a 60/40 margin here, because the all-time high looks very much like a b-wave, and the pattern fit my expected retrace for that first wave.  On October 30, I published the chart below, which showed SPX dropping to the high 2560's and bouncing before heading back down to the low 2560's.  That's exactly what happened, except the correction appears to have been an expanded flat (where the b-wave bounce exceeds the prior high), so we made a new ATH in the middle, which is always a possibility in a b-wave.  With the exception of that b-wave high, the projected correction played out quite well:

So, not only does the ATH look like a b-wave, but the total correction from 10/30 played out essentially textbook in terms of retrace levels.  This is why I'm favoring the bulls, with the bear count as the alternate -- as shown below:

INDU also looks like bulls continue to deserve the edge.  There is a chance we'll tack on another down/up sequence for an even more complex flat (though I suspect not -- I think we've done enough churning and are ready for a clean breakout).  But in the event we exceed the ATH in SPX and then drop like a rock (like the other day), then we'll anticipate that decline as wave C of a more complex flat.

In conclusion, it appears bulls still have the edge here, and SPX is likely headed toward 2625-35 next.  Of course, in the event that 2566 fails directly, then we'll have no choice but to shift to a neutral/bearish footing until things clarify.  Trade safe.

SPX Update

I just realized it's now been a month and a half of updates with me saying, "No real change, the market still looks pointed higher."  I've yet to even seriously consider a bear option (beyond the very short-term) during this run -- so either I've gotten better at "suspending my disbelief," or this has been an incredibly clear bull pattern.  Dunno which -- since I flatly refuse to read anyone else's work (and have for years), I have no clue if everyone else has also stayed on top of this or not.

So far, there's still nothing to suggest bears have taken over (or that they're about to), but again, that can always change in a couple sessions.  In the meantime, we still have to be aware of the potential for an extension that runs SPX into the mid-2600's, as I discussed a month ago.

Last update expected we'd see some sideways chop, and we had that in the sessions since, but it remains to be seen if that chop will grow more complex or not.  Futures are indicating a breakout at the open -- if that whipsaws significantly, then we can stay alert to more chop.  If it back-tests the breakout and that holds as support, then we're likely headed toward 2600 next.

In conclusion, there's still nothing much to add to the big picture outlook.  But as always, we'll stay alert for any signs of a reversal.  Trade safe.