SPX Update: Next Upside Target Captured

Outside of one missed call for the possibility of a more complex near-term correction, we've been on the right side of this market for the past two and a half months, and I'm quite pleased about that, because this has been a very strong rally that no trader wants to be on the wrong side of.

Last update suggested we should presume that bulls had the ball on all time frames unless proven otherwise, and that worked out well as SPX captured its next upside target zone:

Bigger picture, I've been convinced that we're in an extended fifth wave, and I mentioned a few times that we could actually see the rally accelerate in its later stages, which is exactly what has happened:

In conclusion, the nice thing about extended fifths (presuming that's what this is) is that they are "blow off" moves, so the rally should be fast and furious while it lasts... but more importantly, they provide fairly reliable retracements afterwards.  So we should see an abrupt end when this does end, but we'll likely get one good retest of the prevailing all-time-high before it gets too serious about a reversal.  Thus, we'll just hang with the trend until it ends.  Trade safe.

SPX Update

I hope everyone had a pleasant Thanksgiving.  Personally, I gave thanks for the wonderful near-term mess in SPX, because if there's anything I love, it's an untradeable mess.

As you may have gathered, the above sarcasm means that there's no real change in SPX.  Lately it seems the market only rallies when it's closed (via futures), which is the same thing it did around (though after) Thanksgiving 2011.  This is actually something it's does periodically, and I have mentioned it a few times in the past, mainly because it always feels like "cheating" to me.  The leverage in the ES futures market allows one to push the market around at a fraction of the total market cap of the cash market -- so one firm all by itself can (and sometimes does) push futures to wherever they want them for the cash open.

But that's the nature of the game, so it does no good lamenting such things.  It is what it is.

Anyway, no news that's fit to print on SPX.  While the pattern was clear for a good 6 weeks or so (wherein I kept repeating "higher prices still to come"), it's currently a bit muddled, and may remain so for the very near-term.

One thing worth noting is that the 24 hour SPX chart, which contains the action of the futures market, does have the look of an ending diagonal or bull nest.  If we see a quick overthrow of the upper trend line of the blue diagonal, followed by a solid whipsaw, we could see a near-term decline follow.  Conversely, if we break out the diagonal and begin to run, then we could put in a solid upside move (as this would suggest a bull nest). 

It's also possible that the diagonal (if that's what it is) has already completed -- if the black trend line is the upper boundary; in which case watch for a breakdown at the lower trend line.

Something to be aware of anyway:

In conclusion, there's no real change from the prior update, but we do have a near-term pattern that may be worth keeping an eye on.  Trade safe.

SPX and INDU Updates

This market has been quite a bit more fun than riding in a one-horse open sleigh when you're soaking wet and it's -40 degrees out.  And your horse is rabid.  And your sleigh is made of razor wire.  And you're being pursued by Evil Elves who have Janet Yellen's face on their otherwise-normal little elven bodies.  And they're wielding rocket launchers.

Last update noted that the prior decline was an impulse, and caveated that it could be an expanded flat c-wave -- and of course it was an expanded flat c-wave.  Then SPX went on to best the all-time-high.  And now it has answered exactly nothing, because the discussed (B) wave is still possible, but it's also possible that we're already in red 3 (which was the prior alternate count).  The only plus is that I believed from the beginning that the last dip was corrective, and at least now we know for a fact that this was correct.  I guess, to be fair on myself, I did warn repeatedly that the prior chop zone made the near-term increasingly difficult to predict -- but I'm still bugged.

It's interesting to note that INDU managed to work off its severe overbought condition without giving up much in the way of price.  As I indicated in October, when a market gets that overbought, it's actually a fairly reliable and bullish signal that continued upside will follow the next correction.  It will be interesting to see if INDU mirrors its behavior from a year ago in this regard:

In conclusion, the question we all want answered is:  How do we tell now if this is a (B) wave, or if we're already in red 3 and headed toward the next targets?  The only real answer is that bulls probably need to see some fairly immediate follow-through.  Frankly, there's almost nothing harder than trying to predict an expanded flat B-wave -- so this either is or it isn't, and the market simply has to lead from here. 

Either way, Happy Thanksgiving to all my readers!  Trade safe.

SPX and RUT

So we have an interesting battle shaping up in the market.  Traditionally, the week of Thanksgiving is one of the most bullish weeks of the entire year.  But SPX appears to have formed an impulse down from 2590 -- so unless that's the c-wave of an expanded flat, it suggests another wave down is pending:

A couple readers have asked for an update on RUT, but the recent decline in RUT is "uncountable," so I don't have a strong opinion on whether it's complete or not.  It is worth noting that the black trend channel is what arrested the decline, so if that fails, it would probably suggest some downside follow-through:

In conclusion, the most recent decline from 2590 SPX was almost certainly impulsive, so that suggests another leg down will follow the next bounce.  Countering that is the fact that Thanksgiving week is traditionally very bullish -- along with the alternate bull count for a completed correction at 2557.  Nevertheless, I can only "trade what I see," and what I see is an impulsive decline from 2590 to 2578, and nothing concrete to make me doubt that.  Thus bulls need to claim 2591 to trump the apparent impulse and its suggestion of another wave down.  Trade safe.

SPX and INDU Updates

Last update, I was so certain that we'd rally up north of 2586 SPX that I drew that path on the SPX chart and the INDU chart -- and then, just to keep us on our toes, SPX dipped briefly below 2566 before rallying up into the B/(2) target zone.  I cannot even begin to express how difficult it becomes to predict a market that has made as much noise as this one, so please keep that in mind when we look at the projections below.

Let's start with INDU:

SPX would be expected to behave in a similar fashion:

In conclusion:  The bull alternate on both charts is that the decline/correction is entirely complete and we'll head straight on to new highs from here in a decent third wave.  I'm not favoring that -- if we were to make a new high, my first suspicion would be that it's still a B-wave (a second wave would be off the table).  So I'm still inclined to think we need at least one more wave down to complete this pattern -- and possibly more than one.

The biggest challenge is determining exactly WHAT this mess is trying to correct.  Due to the noise leading into the all-time-high, we may be correcting a higher degree wave than the conservative (C)/3 projection shown on the chart.  It's simply not clear, and we'll just have to take it as it comes.  Trade safe.

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.