SPX Update: Market Teetering... Will It Fall, or Can Bulls Right the Ship?

On Wednesday, the market formed what appeared to be an ending diagonal near the highs of the session, then dropped like a rock late in the session, which is the expectation after a completed diagonal.  The question now is whether that diagonal represents part of a b-wave, in which case SPX could retest the zone between 2584 and 2620 (I know that's a large range -- likely closer to the low end), or whether the diagonal was ALL OF wave c of a smaller wave 2.

If it was all of C, it is a VERY bearish pattern, and today/Monday could see a nasty sell-off.  If it's part of a b-wave, then SPX would likely hold 2583 or thereabouts.  Thus 2583 is the first level bears need to claim and sustain trade beneath, while Wednesday's high is the level bulls need.

The easiest way to look at it is that the market remains bearish at all time frames as long as it holds below Wednesday's high.

In conclusion, there's no true resolution to the near-term pattern yet, but there are hints that things MAY be about to get even more bearish.  We'll see how today goes.  Continue to keep in mind that, at best, bulls are looking for a near-term reprieve.  Longer-term looks bearish either way.  Trade safe.

SPX and BKX Updates: Near-term Decision Time

It's near-term decision time for the market, as it has rallied to (and so far stalled at) the first meaningful resistance zone.  The next few sessions could set the tone into the end of the year.  Bulls primary hopes remain for a near-term rally, because both potentials are bearish over the intermediate term.

BKX came very close to capturing my first downside target, so in the event SPX can sustain a breakout, then BKX bears may want to protect/capture some of the 13% profit they've earned over the past two months.

In conclusion, futures suggest SPX will open near the black trend line on the first chart -- if SPX is again rejected soundly at that line, it could suggest a strong sell-off will begin.  If bulls can instead sustain a breakout, then bears should probably demonstrate near-term caution, as the larger red "or (2)?" would open up as one (of several) options.

In all cases, it's difficult to see any type of sustainable bottom in place -- at best, bulls get a Santa Rally before another large leg down.  At worst, things break down immediately.  All roads continue to appear to lead down over the longer term.  Trade safe.

SPX Update: Bounce or Break?

The market has remained range-bound since late-October (though it's a large range), and is currently retesting the October lows.  This, combined with the pattern (which could be an ABC decline (black on chart below) or a nasty bear nest (blue)) means we're in "bounce or break" territory.

RUT (not shown) has already broken its October lows, which suggests that even if we bounce, the red "or (2)" that's been on the chart for a while is probably the correct count, and a bounce would merely forestall the nasty 3rd wave decline.

In conclusion, this is a pretty big near-term inflection point -- but the intermediate pattern continues to suggest lower prices over the longer term.  Trade safe.

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.