SPX Update: Potential Inflection Point

Last update noted that Powell would likely set the tone for upcoming sessions, and set the tone he did.  In his speech, he suggested that rates may be close to a "neutral policy level" -- the implication being that perhaps the Fed would slow or cease increasing rates in the near future.  Which, as we discussed last update, would be helpful to equities.

Powell's words, coupled with a significant technical breakout over previously-noted resistance levels (black and green trend lines) combined to create a "perfect bullish storm," and the market popped quickly higher on Wednesday as shorts scrambled to cover.  We've now reached the next potentially meaingful resistance zone:

In the recent past, the red resistance zone has proved formidable, so bears have a genuine shot at turning it lower here.  If they can't, the chart above outlines some of the next potential resistance zones.

The chart below is just an updated look at the potential symmetry in the event the double-retrace pans out:

In conclusion, we've reached the next upside inflection zone, so it's up to bears to try and mount a defense.  If they can turn it back down here and break the noted support zone on the second chart, then that would potentially be an extremely bearish setup for the immediate future.  If they can't, then we could rally up toward red "or (2)."  This is thus an inflection point.

Publication Note:  I'll be travelling over the next week, so updates may be non-existent until I return on December 9 (I've been known to do an occasional update even when I'm on vacation, so we'll see how it goes).  In the meantime, trade safe.

SPX: Market Waits on Powell

Since last update, SPX has rallied up to blue "2?" which is actually the path I had sketched for it, oddly enough.  Despite following last update's projection, that was probably the "easy" part, because the charts are no longer making it an easy call at this inflection point.  The pattern into and out of the low is sketchy and can be interpreted a few different ways.

The market may be leaving its options open, and it will probably come down to what sorts of signals Powell gives today.

Because, the fact is, the Fed is the one tanking this market right now.  It is raising rates AND draining the $4.5 trillion in liquidity that was added through QE (2009-2014).  Last I checked, they had drained about $350 billion over the past year, which is why the market hasn't really gone anywhere for 2018.  As I've written about previously, the only thing that drives the market is liquidity.  When there is excess liquidity, stocks go up; when liquidity is contracting, they go down.  It really is that simple.

The challenge for assets is that the Fed is still increasing their monthly drain.  To date, the real economy has been so strong that it's been absorbing that drain without a crash -- but if the Fed keeps raising rates AND draining, it will likely overwhelm the liquidity that's being generated by the real economy and push us toward recession and a bear market.

Accordingly, the market may be waiting on the Powell's speech to decide if it wants a complex red (2) (the one we've talked about, that's been on the chart for a while), or if it wants to tank directly in blue 3.  The next few sessions will likely be pivotal.

If SPX can sustain an upward move here, next resistance comes in near the blue lines, with the red line probably being bears' last line of defense against the more complex red (2).

In conclusion, the tone Powell takes today will likely set the tone for the market itself for the upcoming weeks.  Trade safe.

SPX Update: No Material Change

No change to the last few updates.

Bulls still holding critical support, for the moment:

Though this may simply be a nested 2nd wave -- however, there are options for this at multiple degrees, though presently we're only giving significant credence to blue "2?" if bulls can sustain a breakout over the black resistance line, red "or (2)?" may need more serious consideration:

In conclusion, SPX is still balanced on the edge of a cliff, and while it's always possible bulls will stick save it here for a larger Santa Rally to red (2), they have yet to clear their first hurdle, so we'll lean toward blue 2 until the market tells us otherwise.  Trade safe.

SPX Update: Short Holiday Session

Short session today, so the update will be short as well.

Today is typically a light volume session, and traditionally (though "tradition" means little to buyers and sellers) light volume sessions have an upwards bias because large institutions know that if they sell into a light volume session, the market will tank.

Of course, there's no law that says they can't do exactly that anyway, so we'll see how it goes.

In conclusion, the bounce we expected and saw for last session was enough for a complete upwards correction if that's all the market wanted, but it's still possible for the correction to become more complex (by breaking below 2631 and then bouncing again), so stay nimble here.  Trade safe.

SPX Update: Bulls' Last Stand

Last update laid out a clear roadmap:  The preferred count expected lower prices (below 2670) unless bulls could sustain the market above the red trend line.  SPX obediently rallied to the red trendline, stalled, then turned and broke the target level.

The most bearish option is shown in blue on the chart above, and suggests the possibility there's a very nasty third wave decline on deck after a short-term bounce completes.  But let's not ignore the bull case entirely, because it's never wise to ignore real potentials simply because they countermand your primary thesis.

In conclusion, the market performed as projected in the last update, and bears may be on the cusp of giving everyone a major scare in the upcoming week.  I'm leaning toward a fairly direct bearish resolution (after a short-term bounce).  That said, we can't ignore the fact that long-term support is still holding for the moment, so if bulls start breaking their challenge levels, we may have to re-weigh the probabilities.  Trade safe.

SPX Update: Bull Fake Out?

Thursday saw the first downside target from the update captured (black line), and Friday saw the next target captured (gap fill)... the market then bounced hard.  This is typical for bear market rallies, as the fastest rallies on the planet are short-covering rallies.

I'm torn on whether the low is a complete ending diagonal (near term bullish) or a b-wave (lower prices still needed directly) and I'm leaning toward the b-wave.  If bulls can sustain trade over the red line (chart below), then I'll give more thought to the diagonal.

Otherwise I suspect we'll see lower prices fairly directly -- in fact, the market could take out yesterday's low during today's session, if it wants.

In conclusion, no material change.  It's still anticipated that the market is unfolding a massive third wave, which should take prices significantly lower (first target 2500 +/-).  Trade safe.

SPX Update: One of the More Complex Corrections You'll Ever See...

Last update noted that we had an apparent impulsive decline in SPX -- and that told us that the odds favored lower prices were coming, which then happened almost immediately after Monday's open.  Monday turned into a nice downtrend for bears.  Interestingly, once SPX broke the noted black trend line, it traveled almost straight down to the next trend line on the chart below (in red).  There, it initially bounced, but then broke briefly below it and has been whipsawing around that line ever since, going back to mid-Monday.

Next is an edumacashunal chart, because we just witnessed one of the most complex corrections you'll ever see -- so this may be helpful to those attempting to master Elliott Wave.

What we saw was what's termed a "double three," however it was an exceptionally complex example, because there were double threes within the double three, as well as expanded flats.

Starting at Monday's first low, we had red ABC to blue W, then another red ABC to blue X, then another red ABC, this time as an expanded flat, to blue Y, which completed the larger green W.

From green W, we had red ABC to blue W, then another ABC (not labeled) to blue X, then another ABC to complete another blue WXY, and thus complete green X.

Then we had a simple expanded flat red ABC to complete green Y.




These types of patterns are borderline impossible to predict, outside of the very short term (for example, on our private forum, I called the first top at 2748 in real time to the point -- but there was no way for me to know at the time that was only the first of SEVEN total ABCs!).  In these events, nimble traders who take at least partial profits on the new low win, while less nimble traders may end up getting whipsawed.

Corrective waves are inherently unpredictable, and they offer the greatest opportunity for traders to lose money if they're not careful.

Most of our money is made during impulse waves, either up or down.  Sometimes it's good to take a break when one is expecting a fourth wave (which is what I suspect the above pattern is), because they are known for their complexity, and can be all-but-impossible, or even literally impossible, to predict.

Now, the tricky part is:  While the above pattern does represent a complete fractal at one degree (meaning the market can trend again if it wants to), we can't confirm yet that this correction is actually over!  Because, just as we see the fractals within fractals on the above chart (WXYs that complete only to form even LARGER WXYs), it's not outside the realm of possibility for the large green WXY to mark only wave W of an even larger WXY, with X unfolding into yesterday's close and Y-up still to come!

I'm not predicting that as the outcome because, well, NOBODY can predict that as the outcome at this stage.  It either happens or it doesn't.  However, at least we're alert to it -- and we can state with some certainty that it's quite unlikely the decline is complete OVERALL.

In other words, if we do get a larger Y-up rally, we would know from the pattern so far that it's likely a solid short op.

For now, we'll presume the WXY marks a completed fourth wave, with a fifth wave down to come in the next session or two, but if SPX cannot sustain a breakdown of the most recent lows, stay alert to the more complex pattern showing up, perhaps unfolding as a trip toward 2759ish before the next wave down begins.  Trade safe.