INDU Update: Better "Nate than Lever"

Last update noted that INDU was incredibly overbought and suggested that a correction might be near, but I was leaning toward one more new high for the near-term.  The market instead reversed directly -- after going out on the high of the previous day, which is very unusual behavior to say the least (when the market goes out on the day's high or low, that level is almost always broken soon after, and not the "final" high or low prior to a reversal).

We're just going to look at one chart today, which is somewhat speculative, but it's the best I can make of the current pattern at the moment.  There are several factors that make projections extra challenging right now:

1. It's unclear whether the all-time high is an ending diagonal terminal pattern, or a b-wave.  If it's a b-wave, then the decline will be impulsive (five waves) but instead of beginning the correction, it will end the correction.  I'm leaning toward the ATH as an ending diagonal, meaning the current correction should have at least two legs (red ABC).
2. INDU already has three waves down, which could mark a (smaller) complete abc at yesterday's low.  This is my least favored option, but it's technically possible.
3. Presuming my preferred count is correct, we have not yet seen the end of the first leg down.  If wave A hasn't ended yet, obviously it's much harder to calculate where the B wave will bounce to, and where the (presumed) subsequent C-wave will decline to, prior to seeing the end of even this first leg down.  Understand that blue wave A could stretch lower, or end higher, than shown -- which could of course alter the positions of both wave B and wave C.

In conclusion, the first step for bears is to break yesterday's low, which would give them an impulsive decline.  From there, assuming the ending diagonal interpretation is correct, we should see a bounce in wave B, which would then lead to another leg down in wave C.  If bulls instead turn the current rally into an impulse, then we'll have to at least consider the blue abc count -- sustained trade above today's high could be a warning for bears.  The x-factor remains the potential that the all-time high is a b-wave, which is technically possible, though seems less likely.  Probably the key point to absorb from all this, though, is is the first time in months that we've seen a correction that looks like it may develop some meat to it.  Trade safe.

p.s. -- If you don't know the joke about Nate the snake (the reference in the article title), you might consider yourself fortunate... I heard this joke as a teenager from a friend's dad, and I have been cursed with it ever since.  If you just have to know the joke, I found it posted on a random internet forum.  Don't say I didn't warn you!  

SPX Update: Liam Neeson and the Doomsday Clock

Last update suggested that the corrective decline was probably complete, and that new highs were due one way or another, and Friday answered that call in a big way.  Before we get into the charts, though, I have to comment on this next topic, because I think it bears a decided symmetry to certain market biases:

“As of today,” said Rachel Bronson, the president and CEO of the Bulletin of the Atomic Scientists, “it is two minutes to midnight.”

On Thursday, the Bulletin of Atomic Scientists moved the Doomsday Clock—a symbolic assessment of how close the world stands to total destruction—as close to midnight as it has ever been, reflecting the expert group’s “grim assessment” that the world is now “as dangerous as it has been since World War II.”

It is among the most dire warnings ever issued by the Bulletin, whose board of sponsors includes 15 Nobel laureates. Not since 1953, when the United States and Soviet Union both began hydrogen-weapons testing, has the clock been moved so close to the final hour.

(Above is from The Atlantic:  Shrugging Toward Doomsday)

So, what can we learn from this?  Well, first off, we can learn that being a Nobel laureate doesn't necessarily make you smart or wise.  Notice that the last time the world was "this 'close' to total destruction" was... ahem... 65 years ago.  That was "two minutes to midnight."

Thus, one way to look at this would be to draw the conclusion that "two minutes to midnight" equates to at least 65 years.  Probably longer, if the world manages to again fall short of "total destruction" this year (I'm guessing it will -- the world has long been a massive underachiever.  Even before the Millennials.).  

If past performance is any suggestion of future results, we can't help but look at this Doomsday Clock as yet another (well-meaning?) monument to arrogance.  The problem these Doomsday Clockers have is that we've never experienced "total world destruction" -- which means that we have no objective way to measure how close we actually are to this Clock's zero-hour.  In order to make this clock into a reliable objective measure, then we need two absolutely critical data points:  

• When Man's Time began 
• and when Man's Time will end  

We don't have the second data point.  Actually, even the first data point is somewhat uncertain, but that's irrelevant -- because we don't even have something that can come close to approximating the second data point.  For example, we don't know what happens "right before Doomsday."  We don't know what happens a few decades before Doomsday.  We don't know anything, really.  Which makes this Clock nothing more than incredibly blind speculation.   How would, or could, we know what time the clock should actually be set to? 

Obviously, we can't know -- except in hindsight.  At which point, it's a pretty useless clock ("Hey, just though you surviving cockroaches would like to know, it's ten past midnight on the Doomsday Clock!")  Maybe it's presently more like 6:18 in the morning on the Doomsday Clock, and we're just scaring people for no good reason.  After all, few (if any) of the scientists who set the clock to "two minutes to midnight" last time lived to see their doomsday.  

Scientists, of all people, should know better.  I guarantee that the same people who take this clock seriously are the exact same people who mock the Doomsday cultists who run around telling everyone that "the Earth will end on September 21," etc..  And they should mock those predictions!  But they should also realize that they themselves are doing the exact same thing.  

This stupid clock is nothing but a subjective attention-grabbing way to say:

"Hey, we here at the Bulletin of the Atomic Scientists are really worried again. How worried?  As worried as we were 65 years ago!  Yes, we know that everything turned out okay then... stop reminding us.  Yes, we know that we're scientists and not psychologists -- and that psychologists would probably be much better-suited to the task of figuring this stuff out, given that human action is more of a key ingredient to nuclear war than technology.  Look we're just really worried.  And it makes us feel better to make YOU feel worse.  Feeling like we're scaring people into (hopefully) behaving more responsibly helps us alleviate some of the guilt we still feel about inventing atomic weapons.  Sorry!"

This Doomsday Clock reminds me of the analysts who were calling for Doomsday to the Bull Market back in, for example, 1995.  Many analysts then would have set their "Bull Market Doomsday Clocks" to one or two minutes to midnight... and then watched the market advance relentlessly higher, while they awaited their doomsday, which finally arrived years later.  Some of us learned from that experience.  Some of us, clearly, did not.  

Consider this:  Those who were calling for a bear market in 1995 were 5 years early, and we razz them for it.  The scientists who were warning of Doomsday last time were 65 years too early.  And counting!  (But who's taking these scientists to task?  Just me, apparently?)  I guess it's a win-win for them:  If nothing happens, they just set the clock backwards and say, "Hurrah, catastrophe averted."

But were we ever really that close to catastrophe to begin with?  There's just no way to know.

Anyway, I think this is probably why stuff like this bothers me:  I really feel like scientists are supposed to focus on objective facts (not their subjective fears) and be "smarter than the average bear" (see what I did there?  It's a double entendre.  Ha!) -- so it disheartens me that many of them are driven more by emotion than by logic. 

I guess humans gotta "human," but it's concerning that there's less and less objectivity around these days. 

Hey!  Maybe we should start a Doomsday Clock counting down until The Total Annihilation of Objectivity.  Since such a clock would, of course, only be our subjective opinion, it would be poetically ironic.

Anyway, enough tomfoolery!  Let's leave this irrational silliness behind, and instead see if we can answer a truly important question; specifically:

Which Nissan would Liam Neeson lease if Liam Neeson leased a Nissan?

Wait!  Sorry, I'm looking at the wrong notes here...  Try this instead:

Which Nissan would Liam and Lisa Neeson lease if Liam and Lisa Neeson leased a Nissan?

Try saying that three times fast!  But darn it, that's not what I'm looking for either... (rifles through pages)  Okay, here it is!

The Dow Jones (INDU) chart suggests that we may now have come full circle and be right back to where we were in October.  

In conclusion, once again RSI is to the point where we might expect a correction soon, but it also appears that SPX and INDU probably both need at least one more near-term wave higher before the structure will allow for a completed wave.  There's an off-chance for a complete structure already, but awaiting an impulsive decline has kept us from front-running into any trouble for the past few months, so we'll continue to utilize that tactic, and will continue to simply ride the trend until the market says we shouldn't.  Trade safe.

SPX and COMPQ: October Upside Target Captured in COMPQ

Last update noted that we had captured the upside target zones -- after which the market rallied a hair farther on momentum, then corrected.  The $64,000 question now is whether that correction is complete, or if there will be another leg down.  I'm leaning toward the idea that it's complete, but I certainly can't say that with 100% certainty.

Below, I've sketched one possible path, based on the current wave structure.  If we instead break cleanly past the all-time high, then we're likely headed directly to 2860-63.  On the flip side of the coin, if we break down below Wednesday's low, we'd have our first "lower low" in a long time, and that would suggest at least 28 points against the prevailing reaction high (45 points down would be the 2nd target) -- and possibly more.  

Don't get too attached to the blue path -- there are some signs that may be the market's plan, but it's not entirely clear.

It's also worth noting that the long-term target from October has been reached in COMPQ.  When I first published the chart below, I wasn't certain we'd reach the target, but it became obvious rather quickly that we were likely to do so, and this chart has helped keep us on the right side of the trade for the past few months.  It will be interesting to see if the market reacts to this zone, beyond the current minor hiccup.

In conclusion, we do finally have a few mixed signals from the pattern, so we can't just "close our eyes and buy," the way we've been doing for the past few months.  That said, it's up to the market to show us whether it plans to react to this zone or not.  Whether it powers higher or breaks down, at least we know the next price zones to watch.  Trade safe.

SPX and INDU: Next Upside Targets Captured

In the prior update, I noted we had reached a potential inflection point, but that if bulls could power back over the all-time-high, that would signal the all-clear.  The next targets for SPX in that event were 2819-20 and 2840-50, both of which have since been captured.  The next target is now 2858-65, then 2869-75.

Bigger picture, we're reaching another long-term trend line, so it's worth paying attention to how INDU and SPX react to this:

In conclusion, the market appears to be in the midst of yet another extended fifth, this one having begun at 2792 SPX.  The textbook target for this wave would be 2869-71.  If we stall anytime soon (for more than the very short term), then we could see a few sessions of backing and filling, including the possibility of a retrace as deep as 2800.  Keep in mind, though, that there are no guarantees we'll stall, which is why we're still watching for an impulsive decline before attempting any top calling.

Here's another thing about extended fifths:  Because they are fifth waves, they set off everyone (even non-Elliotticians) "topping signals."  But because they extend, they then blow right through those signals and leave everyone who wasn't wise to the potential of an extension scratching their heads.  And missing out -- or worse, losing money being wrong-footed. 

We've been wise to the extended fifth for the past several months (and past several hundred SPX points), and it has saved us countless dollars of loss, and earned us significant profit.  While Elliott Wave is my go-to market tool, I have been doing this long enough to (sometimes, not always) recognize when a wave is extending (as I did in this case), and when that happens, you pretty much have to throw almost every technical system out the window for a time.  Technical systems, just like fundamental systems, are based on the past and the "average" performance of the past.  Extended fifth waves are outliers, though, so they render "averages" pretty useless.

The point I'm getting at is that while I know everyone wants to see wave counts, there's a time for that, and there's a time to simply let the market lead while you just go along for the ride.  We are now in a larger inflection point, as shown by last update's long-term COMPQ chart -- but unless and until the market gives us a signal that it's done extending (in the form of an impulsive decline), we're just going to keep riding along with it.  Trade safe.

SPX and COMPQ: Inflection Point

For the first time in months, I feel the market is unclear at the moment.  The past few months have really been pretty easy -- every day we've looked at the market and determined that it was "still pointed higher," even for the near-term, but today's outcome is rather clouded.

If bulls can power back over the all-time high and maintain trade north of that level, then that could put them in the clear (again) for the near-term, but there is the potential of a completed higher-degree waveform, something we haven't seen in a while.  A complete higher-degree waveform, if that's what this is, would imply that a larger correction is due.  How much larger will have to be determined based on the length of the first impulsive decline (if we get one!).

So, the money has been easy for the past few months, but it's a little harder at the moment.  I don't have any projections here, because a little more input is needed from the market, but the chart below shows some potential inflection zones if we did reverse lower:

It's again worth mentioning that COMPQ has reached a significant large degree inflection point.  Though I'm not ready to say "that's it!" for the rally, the possibility is there.

Take the chart below with a grain of salt for the moment, and view it as a "possibility" more than a "prediction."

In conclusion, this is the haziest market we've seen in quite a while.  How the next couple of sessions shake out should shed some light on where we're going from here.  If we sustain a breakout over the all time high, then the first target is 2819-21 SPX, and the second is 2840-50 SPX.  Trade safe.

SPX and COMPQ: Government Shutdown Would Be Irrelevant -- but the Charts Are Interesting

Last update noted that we had three complete waves down, and that inflection point triggered a rally back to the all-time high, which leaves another option we discussed still on the table, specifically:

Bears also have options for a complex 3-3-5 correction, where SPX could rally up to retest/break the ATH, then drop back down in a larger 5-wave C-wave. 

Of note, the market has now gone 394 sessions without so much as a 5% drawdown, which is tied for the longest stretch in history.  As I've mentioned previously, this market has clearly declared itself to be an outlier.

The big news in the headlines right now is the threat of government shutdown.  This is usually spoken of in bearish tones, but such an event is not necessarily bearish.  And I'm not just saying that because the Federal Government tends to get in the way of things, but because this is what history argues.  The last government shutdown was in 2013; it lasted 16 days, and SPX gained 3.1% during that period.  The two prior shutdowns, both in 1995, were also both net gainers. 

SPX's biggest losing run during a shutdown was back in 1979, under Jimmy "I Got Attacked by a Swimming Rabbit" Carter.  That stretch lasted 11 days, and SPX lost 4.4%.  But that also occurred in the context of a larger bear market, so there's that.

Nevertheless, the chart has left options for bears as of this moment.  SPX currently has a three wave rally off the low, so if it wants that 3-3-5 correction we spoke of, it is technically possible from the current inflection point.  If the market REALLY wants to mess with everyone, the government shutdown could be averted and the market could correct on the news that it's NOT going to shutdown.  That's not a prediction, I simply mention it because the market loves to do stuff like that, so bulls should not assume that "no shutdown" automatically equals "no correction."  Bears should likewise not assume the inverse.

Bigger picture, I do have to mention that we're finally into the margin of error for the long-term count we've been looking at.  I'd be a little surprised if this began immediately without at least one more all-time high (and might be surprised if this begins at all, the way this market has been!), but it has to be mentioned anyway:

In conclusion, we have reached a near-term inflection point, and are within the margin of error for a larger inflection point as well.  There are still no clear sell signals, but if bears wanted to take a little shot this close to the all-time-high, you could hardly fault them for trying.  Trade safe.

SPX and INDU: Time to Break Out Some 38-Year Charts...

A couple weeks ago, I noted that if SPX was able to sustain a breakout over the red trend line on the chart below, then it was likely to get "nutty parabolic, as the market imagines itself temporarily free from all restraints."  I think we can all agree that's not a bad description of the rally we've seen since then. 

This "I'm free, I'm free!" behavior continued until yesterday's session, when the market finally encountered resistance just north of 2800 SPX.

The structure of the rally means that sorting the second and fourth waves, as well as sorting the third and fifth waves, is like (as my good friend used to say) "trying to sort fly dung from pepper."  (Although, he never used the word "dung" -- he used the more colorful word with the same number of letters.)

If this market has told us nothing else, it has clearly told us that it wants to be an outlier that flies in the face of all conventional systems and methods.  Thus I think we have to continue to be very careful about how much we think we know, and I'm likewise going to continue deemphasizing wave counts for the time being (since that's what the market environment has called for recently) -- but I will offer some if/then potentials in the "in conclusion" section at the end.

When markets get into this kind of nosebleed rally territory, it's a good idea to break out the very long term charts, so below is a chart of SPX going back to 1980:

INDU's very long-term chart is similar, but with some observable differences:

In conclusion, as I've been saying for several months in many different ways:  This rally has clearly told us that it is an outlier.  And that means it has no intention of behaving in accordance with past markets, or in accordance with "the usual" systems.  This is why anyone who's been treating this market as "the same old same old" has been repeatedly steamrolled, while we haven't.

That said, here's what we've got regarding the near-term:  Yesterday's drop can be counted as a complete 3-wave decline -- so far.  That means that 2768 could mark the bottom of a fourth wave, but it could also simply be an incomplete wave.  If SPX breaks below 2768 before it rallies above 2794, then the decline is probably impulsive, which would signal a larger two-legged correction underway.  Bears also have options for a complex 3-3-5 correction, where SPX could rally up to retest/break the ATH, then drop back down in a larger 5-wave C-wave.  We'll simply have to spot that in real-time if it unfolds, and I'll update with additional inflection points (besides the ATH) as and if they occur.  Trade safe.