SPX, RUT, NYA, NDX Updates: A Major Turn Draws Near

Yesterday, it appeared reasonably likely that a little more upside would occur on Monday, and that did happen, although the market exceeded my ideal top-end range by a couple points.  What can I say: it's not an exact science. 

Going back to last week, I was expecting at least a minor turn either Friday or Monday.  As I write this, the futures are down about 7 points -- certainly not a ton, but if it holds through the open, it's at least confirmation of the minor turn I expected.  The question I can't answer with a high degree of certainty yet is if this is a major turn or minor turn.  My best guess of the very short-term counts suggest the top is in -- but as I said a minute ago, it's not an exact science. 

Fortunately, there are some levels which will invalidate each scenario, shown on the SPX chart below.  If the black waves 4 and 5 scenario plays out, my target for 4 is shown as the yellow box, and my target for 5 would be 1425-1440.  We'll have to see the form taken by any decline to help confirm or deny my current view, ideally before the invalidation levels are reached.

It is quite a bit premature for bears to jump for joy.  There are still lots of options on the table, including the possibility shown above, and the possibility that this turn will only mark the top of wave (1) of (v).  I've drawn a long term chart to illustrate how much farther the rally could run if that's the case. 

Note that I do not believe this is only wave (1) of (v) -- I think the two scenarios shown above are the most likely.  But the wave (1) of (v) potential is entrirely possible, and this rally has continually surprised to the upside, so I think it's important to be aware of the potential.

Below are two long-term charts, one showing the preferred count, and one illustrating the alternate.

Next, some supporting evidence from the RUT and NYA.  While the count appears to be roughly complete, the RUT has broken out of an inverted head and shoulders pattern which targets 876 -- so as long as it trades above the breakout level, bears should be very cautious.  It it breaks back below the blue line, that target will be suspended. 

Next the NYA, which also appears to have completed a five-wave form.

And the NDX, which also appears roughly complete.  The NDX is one of the indices causing me some doubt on the waves 4 and 5 scenario.  If the wave I'm counting as a failed fifth is actually a second wave, then there's another down/up still coming.

And finally, the devil's advocate chart, to balance things out and provide perspective.  Virtually every major index has broken out over key resistance.  If one only looked at these charts and used no other form of analysis, then one would be bullish on this market. 

However, there is one key bullish ingredient that all these charts are missing, and that's a successful back-test of the breakout levels. 

The real test will come when the market heads back toward those levels.  If the decline is bought, and the market bounces at the breakout levels, then the wave (1) of (v) scenario previously discussed may indeed be in the cards.  If the market can't hold those levels as support, then that's called a whipsaw and usually leads to a strong move in the direction of the whipsaw -- in other words, in this particular case, it would mean "look out below."

Right click on the chart and select "open in new window" to bring up the full-size chart.

In other news, Apple announced a dividend on Monday, prompting several analysts to further raise their price targets on Apple.  Several new targets are actually numbers which are so huge as to be purely theoretical, and which have previously only been applied in quantum physics.  Sometimes this type of "everything's awesome!" awesomeness breaks out near tops.  We'll see if that's the case here.

In conclusion, I do feel the bears are going to have their time in the sun very soon.  My best guess is that the top is in, though I'll allow a small margin of error regarding the waves 4 and 5 scenario previously discussed.  Obviously, there's no confirmation yet, but once a few key levels start to crack, there will probably be a lot of people heading for the exits in a hurry.  Do remember that tops usually take time, so it may still be a little while before those key levels are claimed.  Trade safe.

SPX Update and More: Why I Haven't Yet Joined the Long-Term Bull Camp, Part I

We're going to move through this article starting with the short-term and ending with the long-term.

Friday performed exactly as expected, "choppy sideways with a slight upward bias."  The second part of that prognostication projected at least a short-term turn would start either Friday or Monday.  Nothing happened on Friday to change my outlook, in fact, the action seemed to confirm it. 

The preferred count isn't certain whether that turn started on Friday or not.  There may or may not be a little more out of the market as far as a new high, the charts are unclear.  The preferred count got us into the 1400-1408 target range, and sometimes it's just not possible to narrow things down to two or three points, except in real time.  These updates obviously don't have the benefit of being written in real-time while a move is unfolding, but instead examine static snapshots of the market.

Some indices are giving the appearance of completing fourth wave corrections, though this isn't a foregone conclusion.  Sometimes a nest of 1's and 2's can look like a fourth wave.  If this is a small degree fourth wave, then there might be one small pop left, but there shouldn't be a ton of upside before a correction: 1410-1412 SPX would be about the max upside expected for this leg; ideally less.  Note this is a short-term expectation.  The question I'm still unable to resolve is whether this presumed correction will simply head down to the high 1380's/low 1390's before resuming upwards, or whether it will mark a much larger turn.

Either way, I do believe an intermediate-degree turn is getting close, so I think the next bigger turn will finally be something that bears can sink their teeth into.  In a moment, I'll give some more detail on why I don't think the rally will go on forever, but let's look at the 5-minute SPX chart first.

Zooming out a bit on the SPX, it's quite difficult to sort the black from the blue count, leaving me feeling a bit black and blue mentally.  One thing the blue count has going for it is the fact that it would allow a much cleaner 2-4 trendline.  We're simply going to have to wait and see the form taken by the next decline to help sort one from the other. 

It's also possible that the fourth wave triangle I was mentioning could be blue wave 4.  I think that's less likely, but if the market were to shoot straight up out of that triangle and head above 1420, then it has probably gone directly into blue wave 5 without passing "Go" or collecting $200.  Again, a move like that would surprise me -- but I've been surprised before.

Something the black count seems to have going for it is the RUT (and others, such as NYA) which appear to have completed, or are close to completing, 5-wave rallies.  RUT and NYA charts below.  I originally published these charts in this update, and so far the markets have performed right in line with those charts.

Another interesting longer-term relationship in the NYA is shown below.  The NYA has now perfectly reached the price expectations of the triangle pattern formed in November and December.  This triangle is also one of the reasons I'm not long-term bullish as of this moment -- triangles almost always occur as the penultimate wave in a move.  In other words: they occur as the second-to-last wave -- which means they're found either in the middle of, or late in, a waveform, but very rarely early in one.

Let's use that as a segue into some of the reasons I haven't yet joined the long-term bull camp. 

Some of the charts below are charts I've shown before, others are "new to you." 

Exhibit A is the daily MACD on the Dow.  

Exhibit B is the Dow Bullish Percent Index (BPINDU), now descending from a massive overbought condition.

Exhibit C is the Nasdaq Composite, which is still beneath its old secular bull market trendline.  This trendline is 38 years old, so it's as well-established as they come.

Exhibit D is the German DAX composite, which has not yet exceeded its 2011 high -- and also formed a much deeper retracement off that high than SPX.  The depth of that retracement tends to rule out the more bullish counts -- and the DAX and SPX generally trade with a very high degree of correlation.  It's hard to imagine a world where SPX rallies significantly while DAX declines, or vice-versa.

And finally, a series of chart studies on Chevron.  Of course, Chevron isn't the whole market, by any means; however, it's one of the largest companies on the Dow and comprises nearly 2% of the SPX -- so it's hard to imagine a bull market running the distance without the participation of companies such as Chevron.

This weekend I studied more than 20 years-worth of Chevron charts, at 8 different degrees of trend.  That took about 5-minutes.  Ha!  I wish.  Anyway, Chevron appears to be forming a textbook ending diagonal, which suggests that prices will return to the level at which the diagonal began -- at the minimum. 

The chart series starts with a 20-year view, and gradually zooms in down to the 30-minute level.  The chart annotations contain all the info one needs, with the exception of the mention that while the alternate count suggests a 25% decline, the preferred count suggests a much deeper decline of 50% or more.

In conclusion, I'm not certain if there's a little more upside coming before at least a small turn, though if there is any, I wouldn't expect much upside.  That's the first question the market needs to answer.  Once that question is answered, then we can take a look at the shape of any forthcoming decline and try to determine if there will be another leg up, or if that's all she wrote. 

Because of the NYA and RUT, I'm still leaning toward the idea that this is a complete five wave rally, and the turn will be a larger turn -- here where virtually no one expects it.

Beyond that, examining the bigger picture, I currently see no reason to be long-term bullish.  The counts still allow for the possibility of a correction and another thrust up, perhaps into the mid-1400's -- but it does appear that the time for a bigger turn is finally drawing near.  Trade safe.

SPX Update: This Zone Represents a Confluence of Targets

I did a lot of work on charts tonight, but I'm going to keep the update short, sweet, and simple.

Yesterday's market traded right into the target zone.  I now believe there is a turn coming either today or Monday.  I suspect today will be mostly choppy sideways movement with a slight upward bias -- though the turn could come later in the day.

The question I'm trying to answer is how significant this turn will be.  First off, I'm assuming this turn will come, so that's presupposition #1.  Obviously, there are no guarantees it will.  Going along with that presupposition, and assuming this turn does come, it could end up being only a small fourth wave, and lead to new highs afterwards.  However, I'm now leaning a little more toward the idea that this assumed turn will be a larger turn.

Obviously, this is entirely speculative since the charts show nothing bearish whatsoever in the form of key trendline breaks or breaks of any key support levels.  I could very well be wrong, especially considering this is into the teeth of a strong rally.  So what could make me possibly consider a larger turn here?

Well, this zone does have some interesting characteristics. 

1) 1406 is a long-term resistance level.  The rally has come far and fast, and while it's possible it will just power through this resistance, there is no reason to assume it will.  In fact, going long just under this level is front-running -- until the rally breaks it and it becomes support, then this old resistance level should be given the benefit of the doubt.

2) 1406/07 is where wave (v) will equal wave (i) times .618; that provides resistance as well.

3) 1407/08 is the target from the bullish trade trigger which elected on March 13.

4) The short-term wave structure looks nearly complete.

Here are the charts, short and simple.  I'm leaning toward the black count on the 5 minute chart; the red count on the daily chart.  Okay, that's not short and simple -- sorry, I don't have time to change the colors now. 

Anyway, my best guess for an approximation of what today's action will bring is sketched in with the blue lines on the 5 minute chart.

As I said, I'm leaning toward the black count below.  Trade beneath the red KO level would rule out the blue wave 4 potential, but it seems incredibly unlikely that would happen today, barring Bernanke showing up on CNBC dressed in a chicken costume and singing "Old MacDonald."

Next the bigger picture chart.  This chart shows the long-term support and resistance levels.  If the interpretation I'm leaning toward is wrong and the market powers through 1406, then next resistance is around 1425, and then 1440 above that.

And finally, I do want to show a more bullish interpretation, again keeping it simple.  This uses the Dow Industrials for illustration purposes.  If the SPX can maintain trade above 1406, then this could be how the market unfolds over the coming sessions.

In conclusion, I suspect today will be mostly sideways up, with a turn coming either later in the session or Monday. 

But it bears repeating that until the trendlines start breaking, there is no indication that anything bearish is happening.  The first trendline bears need to claim is the black line shown on the short term chart.  After that, they need to capture the red and black lines on the second chart.

Until those things happen, this is simply my speculation based on a number of observations -- and quite frankly, I'm way out on a limb here. So if one even considers shorting here -- perhaps just under 1406 resistance, or perhaps if the market trades above then falls back below resistance -- then stops should be used (as they always should, in my opinion), and one needs to have awareness of the fact that if the market can sustain trade above 1406, then 1425-1440 become the next targets.

If the short term counts are right, today will probably have a lot of whipsaw action around this zone, so it could be tough to trade.  And the possibility clearly exists for the market to move much higher more or less directly from here -- so the "safer" thing for shorts to do might be to wait and see if the bears can retake support near 1397.  As always, none of this is trading advice, and you should always consult your broker, your accountant, your priest, your barber, and your weird Uncle Bob.  Trade safe.

SPX, RUT, NYA, BKX: Giving the Bears Some Airtime

I hate "lazy" charting, and I think it's important to constantly challenge one's assumptions.  During yesterday's session, I began considering the possibility that my initial labeling of the smallish correction back on March 12 as a 4th wave might actually have been correct, and that we were witnessing an extended fifth wave.  The rally does have a "blow off top" feel to it, which is characteristic of an extended fifth wave.

To try and sort things out, I've charted a few other markets, and as of this moment, the extended fifth scenario for SPX looks quite plausible.  That could certainly change with a little more price movement, but I think it's worth considering the possibility, especially since the NYA and RUT seem to support this scenario. 

Have a look at all the charts and see what you think. 

Extended fith wave or not, the first thing that definitely bears mention is the fact that if the count below is correct, then wave 3 (or 5 if it's an extended fifth) should not exceed 1408.16, due to the length of red wave 3 (see below).

Minimal annotations on the big picture chart below -- I've left the target box for the more conventional count, though I've turned it yellow to reflect caution.  ;)

Here are some charts where the more bullish count seems to run into trouble.  First, the NYA:

Next, the RUT:

And finally, the BXK:

And now the warnings and the take-away.  Really, at a larger scale, everything (except for the Trannies) looks very bullish as of this moment.  If it's a whipsaw head-fake, that's how it should look... but of course, sometimes a duck looks like a duck because that's actually what it is. 

If the bears can't turn these breakouts into whipsaws in the near future, then they may have to go into hibernation for awhile.  Given all the charts we just looked at, though, it seems the bears may have a black swan event up their sleeves.  It is important to realize, however, that until some key levels are broken on the downside, there is no confirmation of anything bearish.  This could be an extended fifth wave, and still only prove to be wave i of 5.  Without confirmation, there are only probabilities and speculation.

Given the appearance of the structure in all the charts as of right now, there is a decent probability that we are witnessing an extended fifth wave unfold in SPX; aka - a blow-off top.  After taking a look across markets, I'm leaning toward that outcome, and it will be interesting to see what the market does over the next few sessions to confirm or deny that theory.  If this is an extended fifth of wave (v), then this next turn will be a big one.  Trade safe.

SPX Update: That About Sums It Up...

Well, yesterday cleared up the counts quite nicely.  The bullish trade trigger at 1374 elected and from there, the market pretty much traded straight up with zero drawdown.  That trigger targets 1408. 

We now have solid confirmation that wave (iv) did indeed complete at 1340.  Preliminary targets for (v) are 1432-1465. 

The dollar also rallied yesterday, proving once again that markets aren't always correlated.

Straight to the charts.  Since everything has clarified, I can project some likely target zones for each wave.  First the 5-minute chart, and the probable target for blue wave 3.

Next the 30-minute chart, for context and the larger wave (v) targets.  If you'll note the RSI momentum has exceeded any so far produced by this rally.  Those looking to short would be advised to take a step back and wait -- moves almost never reverse significantly without first building a momentum divergence.  A divergence exists when prices make new highs, but momentum fails to exceed its old high.  Currently, no divergence exists, which makes higher prices extremely likely.

Next, a couple of Bollinger band charts; one of the SPX, and one of the VIX.  SPX closed outside its upper Bollinger band, which doesn't happen too often; and VIX closed outside its lower.  These signals often indicate that an intermediate top is getting closer.  Once again, I do not expect an immediate top here by any stretch -- I expect higher prices first.

In conclusion, the move appears pretty straightforward, and while not exactly "anticipated," since the signals were a bit conflicted, it's not at all unexpected either.  Once the bullish trade trigger elected, the market declared its intentions and was off to the races without looking back. 

I expect higher prices over the near term, though there should be some 4th wave sideways/down corrections along the way.  The market's next significant turn is unlikely to come until at least the mid-1400's.  After wave 3 completes, targets will become more accurate.  My SWAG right now is 1440.  Trade safe.

SPX, VIX, and US Dollar Updates: What's Bullish; What's Bearish

Yesterday was the type of day technicians dread, because literally nothing happened.  What possible new insights could anyone have after a day like yesterday?

So I've decided we're going to play a game called Quien Es Mas Macho?  Sorry, bad SNL reference there.  Actually it's called What's Bullish; What's Bearish?

Let's start off with what's bullish. 

First off, we have the SPX chart.  This chart is still quite bullish intermediate-term.

The short-term SPX chart looks bullish as well, though I would expect a deeper retrace than we had.  The retrace from the last couple days doesn't look deep enough to be a 2nd wave, so I have relabeled the chart.  If it was a 2nd wave, then bears are in real trouble.  2nd waves usually retrace 40-60% of the prior move.

Bears will immediately notice the alternate count, which allows for the possiblity that the rally off the 1340 print low will end very soon and constitute ALL OF wave (v).  This is indeed possible, but generally one would expect more from a fifth wave at this degree.

Please note my annotation regarding the bullish trade trigger.  I was anticipating a deeper retracement than the market gave us yesterday -- and without that deeper retracement, I feel the potential for whipsaws around that trade trigger is markedly increased.

Also bullish is the fact that the Dow Industrials have closed the last 3 days above their 2011 highs.  This is a key breakout level for the Industrials.

Now it's time for what's bearish.

First off, as I spoke about yesterday, the dollar looks bullish -- which is generally bearish for equities. The dollar continues to maintain closes above its key trigger level.

I also did a short-term dollar chart last night, and the dollar has so far proved this chart quite accurate.

Another potential bearish factor is the VIX, which basically closed right on its lower Bollinger band yesterday.  This often leads to a bounce in VIX, which is usually bearish for equities.  Further, the VIX has reached a long-term horizontal support zone, which may also argue for a bounce soon.

So, it's still a market of mixed messages.  Unfortunately, the market gave us nothing to work with yesterday, so putting the possibilities all together on one chart looks very similar to yesterday's.

 
In conclusion, the market didn't give us much to work with on Monday.  While the SPX charts don't look at all bearish, the dollar seems like it may have plans to put the damper on things.  Unless we have another day like yesterday, these questions should resolve soon.  Trade safe.

SPX, Dow, and USD Updates: Signals Still Conflicted

There are a number of conflicting signals and potentials, and trying to assimilate all of them into an overarching market plan is a bit challenging at the moment.

On Friday, just about everything across markets was up:  equities, the Dollar, oil, gold, and bears' blood pressure.  Usually this type of action leads to a move down in equities the next day.

I should mention quickly, in regards to Friday's article and the counts shown therein:

• BKX blew up its preferred count as shown.
• SPX performed within expectation of the bullish ST count, and within acceptable tolerance of the bearish count.
• Dow performed as anticipated.

So, as I see it now, there are 3 main possibilities still on the table.  We'll discuss those, and some of the pros and cons of each.  First, let's take a look at the potentials. 

The first chart is the big picture SPX chart.  For the majority of February, I was favoring the red count on this chart.  At the last minute, some of the action and short-term patterns caused me to ever-so-slightly shift my preference to the gray count.  I may have been a bit premature, and probably should have waited for the short-term patterns to resolve before shifting my preference.  To be determined.

The three main possibilities are all shown on this next charts, as follows:

1. Wave (iv) is complete, and the market is now heading to new highs in wave (v).
2. Wave (iv) is partially complete, and there is another leg down to come before the market heads to new highs.
3. Wave (c) is entirely complete, meaning wave (iv) already happened and the 1378 print high will remain as the high for an intermediate trend change (shown in gray).

Zooming in a bit, and ignoring the gray (c) wave for a moment, the two likely wave (iv) counts are depicted below.

Of course, the SPX never tells the whole story, so let's look at some other charts.

One of the supporting cast members which could create problems for equities is the US Dollar, which looks like it may have put in an intermediate base at 78.  Over the past couple weeks, I've talked about the red trade trigger and corresponding target of 85-87 for the USD -- if it maintained closes above the red breakout level.  On Friday, the dollar hit this trigger level and put in a massive bounce.  Apparently, I'm not the only person watching that level.

If the dollar has put in a base, the action there is likely to put a cap on the equities rally -- so that tends to favor the gray count; or the idea that wave (v) won't be as large as expected.  Of course, whether the dollar holds this action remains to be seen.  Bernanke could emerge from his cave tomorrow and announce that the Fed is planning on selling sheets of uncut hundred dollar bills, intended for use as house insulation, for 89 cents apiece at Home Depot. 

They remain the fly in the ointment -- and if the Fed wants higher equities and a lower dollar, then they have lots of "tools" at their disposal, not the least of which is Bernanke himself.  It remains to be seen how the Once-In-a-Lifetime Greek Credit Event! going on right now at your local Greece dealer, will impact Bernanke's plans to annihilate our currency.

So the dollar charts look bullish for the moment, but I remain deeply distrustful of the Fed.  Probably exactly the type of sentiment the dollar needs to stay bullish.  We can go round and round with this reasoning -- which is the main reason I try to stick to the charts -- but in this world, the central banks are by far the biggest players, dwarfing even institutional investors, so ignore them at your peril. 

That's an awfully sad commentary on the state of things, by the way.

Anyway, back to the charts. 

The next chart is the Dow Industrials, and this is another chart that may argue for a less bullish long-term outcome.  This chart also creates at least a slight problem for the more bearish wave (iv) count (the green count in the 2nd SPX chart).  A material break of the uptrend since October would also break the rising wedge.  This suggests that the green wave (iv) count is probably less likely. 

Additionally, the short term Dow count of the recent rally still looks corrective to me, even after Friday's action. 

It looks more bullish on the SPX, but it's not unheard of for zigzags to look impulsive.  Below is the bullish way to count the SPX rally. 

I do still expect lower prices on Monday for either count.   Obviously, however, the market reserves the right to do the unexpected.  Below is a chart of the very short-term support and resistance levels for SPX.

Next is a chart I showed over the weekend, which highlights two promising trade triggers and an interesting "return to the scene of the crime."  This is quite common to see after a sustained trend: the break and subsequent back-test of the old trend line.  This chart looks near-term bearish to me, because the market basically stated that, as of Friday anyway, it has no interest in returning to the old trend.

Here are the trade triggers zoomed in a bit, so the levels are easier to see:

To summarize, over the very short term, I'm anticipating Monday will see lower prices.

Here are some other key points:

• Trade above 1378.04 will eliminate the most bearish possibility that (c) is complete -- and trade at that level would also already have the market into the zone where the 1408 target is active.
• The dollar looks bullish.  If it remains so, this suggests that upside for equities may be limited.
• The alternate wave (iv) count (green count) would complete a bearish rising wedge pattern on the Dow, and cause a break of the larger uptrend since October.  This makes that count somewhat less likely, in my opinion.  If I gave zero consideration to the Dow chart, I would say a 3-3-5 flat (in SPX; the Dow hasn't retraced deeply enough to qualify) might be playing out (the green count).

There are some nice trade triggers developing in SPX -- and these trade triggers should give some good clues about which count is playing out.  We may have a few more sessions of no-man's land first, though, especially if the preferred short term count is correct and the market heads down into 1353-1362.  There's now a big no-man's-land range between 1340 and 1378 that the market can race up and down in for a while if it wants to.  Trade safe.

The original article, and many more, can be found at http://PretzelCharts.blogspot.com