SPX and INDU Updates: No Surprises Yet, as Bears Won the Near-Term Battle

Here in Hawaii, we don't do daylight savings time.  I grew up on the East Coast and always hated daylight savings time when I lived on the mainland... but I think now that I live here, I hate it even more.  It's been kicking my already-exhausted butt lately, because it causes the cash market to open at 3:30 a.m. local time (instead of 4:30 a.m.). 

As a result, I am going to switch from the long-standing Monday/Wednesday/Friday schedule of updates to a schedule of Tuesday/Thursday updates, at least until further notice. 

Fortunately, there have been no real changes to the last few updates anyway.  Last Thursday's update noted the level bears needed to claim, but likewise noted that the Dow Jones Industrial Average (INDU) made lower prices appear likely for both INDU and SPX.  As I wrote in that update:

On the INDU chart above, I won't say I've never seen a pattern such as this one that ends up resolving bullishly -- but it's far more frequent to see such a pattern resolve bearishly over the near term.

INDU's updated chart is below:

The biggest challenge faced by all market participants right now is that we are clearly dealing with a series of complex corrective waves, and -- unlike impulsive waves -- corrective waves have virtually infinite options.  They do not need to adhere to the same rules as impulse waves, so (at times) they have the freedom to do almost anything.  The challenge this creates becomes especially pronounced within the context of the massive decline we saw from the January highs to the February lows -- because that leaves an awful lot of price leeway for them to work with here.   

We hit the bottom in February rather well, and knew to expect a sizeable rally from there -- but what we didn't know was the exact form that (presumably corrective) rally would take.  I kept hypothesizing complex moves, based on my prior experiences with such waves, and we're finally seeing just such a move.  But that doesn't make this any more predictable.  So please keep that in mind when you look at the charts I present.  Given what's in the charts at the moment, I'm projecting the path that seems most likely -- but the market can take other, more complex, paths if it so chooses.

This is one of the facts that some traders fail to understand about Elliott Wave Theory (or any market projection tool, for that matter):  Impulse waves must adhere to certain rules, which makes them predictable.  Corrective waves do not need to adhere to those same rules (except within the context of the next larger wave degree), which can make them somewhat unpredictable.

Your money is made during the impulsive moves; but failing to adjust your strategy during corrections will often cost you money.  One cannot treat corrective waves like impulse waves. 

Along those lines, I'd like to mention that it is technically possible that the big Red C decline has already begun, but again, I view that as less likely.  I view it as less likely because it's difficult to reconcile the correction since the February lows as a complete wave structure -- so I would expect that when the current decline completes, bulls will get another rally toward the all-time-highs to complete the structure.  I am mentioning it, though, because "less likely" and "impossible" are not the same thing.

On SPX's chart, I have outlined one additional complex corrective pattern (black alt. count) that is (again) possible, if seemingly-less-likely:

I'd actually like to see a rally up to back-test the red trend line, and possibly even a test of the blue horizontal support/resistance zone (on SPX's chart), but neither of those options are required.

In conclusion, bears have whipsawed the prior breakout, which we anticipated was likely.  Ideally, they'll keep pushing and break below the March lows, but because this is a complex correction, we cannot guarantee that this wave won't morph into something even more complex.  Trade safe. 

SPX and INDU: Fractured Markets

SPX continues to whipsaw everyone, bulls and bears alike.  Early this week, SPX broke briefly above its February high, then reversed right where I'd placed the black "or B" label.  It's possible that black C is unfolding, but bears have not yet accomplished their key goal toward that count, which would be a sustained breakdown at the red trend line on the chart below. 

It's normal for breakouts to retest important trend lines, so nothing truly bearish has happened here yet -- however, if bears can break below that red trend line and turn it into resistance (not a brief whipsaw, in other words), then they'll be well on their way toward making the black count a reality.  If they can't whipsaw this breakout, then bulls still have the ball.

Apart from SPX, an issue for bulls may be the Dow Jones Industrial Average (INDU), which still hasn't come close to clearing its February highs, and which is actually faring rather poorly when compared with most other indices.  This is not encouraging to bulls for a couple reasons:

1.  INDU tends to lead SPX, not vice-versa.  It is currently leading lower, not higher.

2.  The broad market is badly fractured.  NASDUCK made new all-time highs; SPX broke its February high and whipsawed; INDU is nowhere near its February high.  Over the past 9 years, equities across indices have generally rallied together.  The fact that they are not able to do so now is indicative of the fact that there is not enough liquidity to go around (as I spoke about previously).  These fractures essentially confirm that there simply isn't enough cash to pump everything to new highs at once... and bull markets need cash.  (Bear markets, of course, need thin liquidity.)

Can bulls reverse this situation?  Of course, anything is possible.  We can only analyze what's present in the market at this exact moment in time -- and as of this moment, both of the above situations exist.  And they paint a picture that suggests trouble may be brewing beneath the surface.

On the INDU chart above, I won't say I've never seen a pattern such as this one that ends up resolving bullishly -- but it's far more frequent to see such a pattern resolve bearishly over the near term (below the blue A/1 low, in other words).

Finally, I'm about up to my ears in the headlines about "trade wars."  I can't recall the last time the media milked an issue so heavily for every single intraday move.  If the market ticks downward, they blame "trade war fears"; if it ticks higher, they say "investors shake off trade war fears."

Holy cow, guys, get a new shtick already!  The "trade war" is not driving the market -- and it's certainly not driving every single intraday move.

There's been a lot of talk about China in the "trade wars," but apparently only 2.9% of our steel is even imported from China.  Our leading source of imported steel is actually Canada (accounting for 16%), with Mexico also high on the list (at 9%).  These so-called trade wars appear to primarily be a bargaining chip that will be used for renegotiating NAFTA, so I think the media is overplaying this card.

In any case, as we've noted, there are a couple warning signals from the market that liquidity is still thin (nothing to do with "trade war fears"), and while we could be close to a short-term bottom, bigger picture, the onus remains on bulls to prove they still have the firepower to keep the broad-based bull market going.  Trade safe.

SPX Update: Exclusive Short List of Contenders to Replace Cohn

Before we get into the charts, my exclusive sources in Washington have uncovered Trump's list of the candidates who are being considered to replace Cohn.  On condition of anonymity, my sources have agreed that it's "okay" for me to share this with our readers.

So, below is the current short list of leading contenders to replace Cohn:

Many pundits were expecting Square Based Pyramid to be on that list, since he's a lot like Cohn (but with more edge) -- but I bet a lot of people are surprised to see Cuboid on there!  Triangular Prism is generally considered to be the most bearish option.

I'm looking forward to us finally being able to watch a long-anticipated season of The Apprentice:  Washington Edition, as these leading candidates are forced to perform wacky antics before a live television audience, while Trump eventually tells all but one of them:  "You're fired."

Kidding aside, the market has continued to remain "more fun than a barrel of radioactive waste from Chernobyl," as there are currently no less than three possible patterns that could develop from here.  The one that has the potential of burning the greatest number of participants would be the black path on the chart below.

However, the blue path offers two different targeting methods that both arrive at 2868+/- as the final target, so that's interesting.

In conclusion, bulls are keeping things interesting, but their ideal count ("Bull Alt: 3") would still seem to be the underdog in the current market.  We'll have to continue to track this as it unfolds.  Trade safe.

Update Schedule NOTE

Didn't realize mainlanders had done Daylight Savings Time already this weekend, so update will be posted tomorrow.

SPX Update: Inflection Point

Last update discussed the possibility of a top nearby, but with two caveats (quoted below):

1.  "The main question now will be an option that I raised on our forums on Monday, and that's for a more complex "double retrace" correction prior to the next leg down." 

2.  "On the one hand, I like the idea of the market trapping bulls near yesterday's high before embarking on a more serious decline, but on the other, I'm never a fan of "bad news" market tops and vastly prefer significant tops to occur on "no news" or good news.  Consequently, I'm only slightly favoring the blue path over the black path."

It's worth noting that the e-mini S&P futures (symbol: ES) will have completed that discussed double-retrace, although this isn't entirely apparent on the cash charts.  In a perfect world, today's open is where bears will make a stand.  If they can't, then we have to consider the possibility that we run toward the Blue C target more directly:

(PLEASE NOTE TYPO:  2990 should read as 2790!)

In conclusion, a gap up open that reverses soon thereafter would be exactly what bears want to see here.  If we instead "gap and go" (keep running strongly), then bears will want to be cautious, as such a move could signal a run toward 2825-60.  Trade safe.

SPX Update: The Perfect Storm?

Monday's preferred market path (as shown in blue on the 15-minute chart) expected that the market would open lower, but reverse that opening to run up toward SPX 2720-30 before reversing lower again.  The first two projected moves were a hit (although SPX ran a hair higher than 2730), and given the "surprise" announcement of Cohn's resignation and the subsequent futures reaction, it appears the third stage of that prediction may come to pass as well, though there are two routes the market can take to get there.

The main question now will be an option that I raised on our forums on Monday, and that's for a more complex "double retrace" correction prior to the next leg down.  That option is shown in black on the chart below:

On the one hand, I like the idea of the market trapping bulls near yesterday's high before embarking on a more serious decline, but on the other, I'm never a fan of "bad news" market tops and vastly prefer significant tops to occur on "no news" or good news.  Consequently, I'm only slightly favoring the blue path over the black path.

But I am still slightly favoring the blue path, because between Trump's tariffs (which seem likely to drag on the economy, IMO, and will certainly suck liquidity out of it either way) and Powell's brazen unwillingness to intervene and backstop this market (which, while potentially painful, will be exactly what the market needs -- a move away from the interventionist policies of the past 10 years and the current bubble), it seems as if the market is facing a possible "Perfect Storm."  Interesting that the charts saw this potential storm brewing back in January.  As I've said for many years:  The charts LEAD the news.

In conclusion, barring the possible "double retrace" rally noted on the first chart, there's no material change from the prior update. Trade safe.

SPX Update: Bears in Control Again?

Last update noted that the rally had stalled at the inflection zone, and I wrote that "downside risk has begun to outweigh upside potential."  That turned out to be true, as SPX dropped roughly another 100 points from there.

The market seems to have formed an impulsive decline, so we probably have to presume at least one more impulsive decline is still forthcoming, although we might see a bounce in the interim:

On the chart above, I'm allowing for the possibility of a more complex correction prior to C/3 kicking off for real -- but currently both preferred paths are pointed lower.  One ends at a retest of the low, while the other continues to new lows.  New highs from here much be viewed as an underdog at present.

Bigger picture is unchanged from a month ago (though I've adjusted the C/3 targets by about 10 points):

In conclusion, while there are a few more complex patterns that could show up here, we'll simply have to try to adjust to those in real-time if/when they show up.  Barring that, we should probably treat this as if 3/C has already begun, or at least as if a retest of the zone near the mini-crash low is on deck.  In both cases, it appears the market is still pointed lower.  Trade safe.