NYA, RUT, COMPQ, SPX, INDU: What the Bears Still Need, and Targets for the Expanded Flat

Last update noted the expanded flat appeared probable, and, thankfully, the market never deviated substantially from that road map, thus freeing me to spend the rest of the week on highly productive activities, such as helping my sons build gigantic houses in Minecraft.  If you've never played Minecraft, then I suggest steering clear of it, because it's one of those games that's capable of sucking away entire days of your life and leaving you with only a bunch of "virtual productivity" to show for it.  You can build an entire house out of gold and diamond bricks in Minecraft -- yet few, if any, of your creditors will be impressed by that accomplishment.  Nor will your spouse.  BUT: your kids will love you for it... which is how I got suckered in.

Anyway, there are lots of charts to cover today, so I'd better quit yammering and get to it.  Since this week will possibly (also) be a light publication schedule, I've done a number of extra charts to hold everyone over.  First off is the trusty NYA:

Next is COMPQ, which managed to peak less than 50 cents away from the key overlap, thus providing an entry for even the most risk-averse traders out there:

Next is RUT, which appears so incredibly straightforward that it almost makes me uncomfortable.

INDU:

Finally, SPX, which bounced a week ago from the support zone I'd noted, then managed to rally up to new highs, thus seeming to validate the expanded flat.

A closer look at SPX reveals that the decline, so far, is only three waves.  Bears can probably feel a bit more confident after a new low, which would complete an impulsive decline.  There aren't any magic bullets in trading, but impulse waves are the closest the market comes to "confirming" trend changes.  The obvious count here is for a 4th wave triangle.  Since the bulls have surprised so often in this market, I'm now always wary of the obvious bear counts.

In conclusion, the expanded flat count continues to appear solid.  Assuming a new low is forthcoming, then that will be as good as it get for confirmation that C-down has begun, and my minimum target is the 1940's for SPX.  For reference sake, the textbook target for an expanded flat would be 1938-39.  And now the flip side of this coin is that the target areas could represent the next major turn, and lead the market back to new highs.  INDU and RUT are hinting that there could be other potentials, though, so I may pop in later this week with another update as things unfold.   

Oh, and also please note there's a "Donate" button on the upper right side of the blog -- that button helps generate new updates if it's clicked on a few times (of course, I'm assuming the link still works; it's been an awfully slow year for this...!).  Sorry to mention it, but let's face it:  Short of that, I'm being just as productive playing Minecraft with my sons (probably moreso, since that's family time).  Thank you (again) to my very small handful of regular supporters (you know who you are!).

Have a great week, and trade safe. 

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No Material Change

Nothing to add, really, other than the expanded flat may be complete or nearly so, as of Thursday's session.

Trade safe!

SPX, NYA, COMPQ: There is No "I" in T-E-I-M

My title has nothing to do with anything other than to demonstrate that "team" can be spelled with an "I," because I hate (the correct version of) that saying, and because I've just always wanted to use that as a title.  Okay, maybe "always" is an overstatement.  I've wanted to use that as a title for at least the last five minutes, though.

Anyway, this week may have a lighter publication schedule, depending on how the week shakes out. If the market starts to deviate substantially from the paths discussed herein, or screams "go long!" or "short me!" then I'll try to do an update that particular night (or "morning," as you folks who live on the mainland tend to experience it).

Let's get right to the charts.  First off is the NYA -- and the pattern here really makes me want to see new lows, either directly or after a bit more rally.

Next is the SPX, which details the expanded flat and some important levels:

No real change on the 30-minute chart from Friday's update, other than to note that the expanded flat is suddenly a bit less far-fetched than it seemed on Thursday night.

Finally, COMPQ also seems to argue for the bears potentially pulling out an upset here:

In conclusion, the chart patterns have led me to believe that the correction is still unfolding.  If bulls sustain breakouts on COMPQ and NYA, then the picture changes substantially -- but until then, the charts seem biased toward the sell side.  And yeah, I know it's a bull market and all -- so trade safe.

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SPX and NYA: New Lows Likely

Last update revealed that I'm something of a cynic when it comes to the Fed -- and I seem to recall I also covered some charts.  The market's been a bit of a roller-coaster in the two sessions since, so today's update will be lighter on cynicism and heavier on charts (sorry!).

The first noteworthy observation is that the S&P 500 (SPX) failed to cross the technical invalidation level for the preferred count (though it certainly made a good show of pretending it would), then collapsed in a fashion consummate with the projected c-wave.  Before getting to the SPX chart, though, I'd like to discuss the NYSE Composite (NYA).

NYA presents a very interesting chart.  It made a new low in yesterday's session -- and that provides some important information.  This chart also reveals a glimpse at an alternate count that, if realized, would almost certainly be an excellent shorting opportunity.

The NYA chart tells us that lower prices for SPX are good odds, because NYA's fractal is such that it's unlikely to be entirely complete.  The way market fractals function in this regard is probably best described by analogy:  Imagine looking at a side view of a car where the back half is covered by a black curtain.  While you can't be 100% certain of what the back half of the car looks like, you can make some pretty high-probability extrapolations based on what you've seen so far.  For example, you can extrapolate that there probably is, in fact, a back half to the car (as opposed to just air behind the black curtain).  In a similar sense, the fractal in NYA strongly suggests that lower prices are ultimately in store for the broader market, because it's an incomplete fractal.

Therefore, SPX presents essentially the same preferred and alternate options as NYA.  The nod goes to the red/blue count as preferred based on RSI, and based on seniority (it's been the preferred count all week and I don't want to hurt its feelings) -- but just as a side-note, I'd love to see the alternate count come to fruition, simply because it would present a very high probability short opportunity.

 
In the last update, I mentioned that the Dow Jones Industrial Average (INDU) and Dow Jones Transportation Average would both "look better with a couple more thrusts to new highs," and each index reached a new high on July 16, and again on July 17.  Those two new highs appear to have completed five waves up in both of those indices, and also formed pretty ugly bars on the daily charts.  As a result, bulls must at least remain cognizant of the potential that this correction could mark the start of something larger than the aforementioned "traditional" c-wave.
 
I had already anticipated that possibility prior to Wednesday's session, and had been showing it on the 2-hour SPX chart as black "alt: 5/alt: C" with little in the way of explanation.  An explanation will have to continue to wait, because I'm not going into much more detail on that unless it becomes appropriate to do so in a coming update.  For now, it's at least something to keep in mind, especially in a market that has so often rewarded complacency.

Not shown today is the Russell 2000 (RUT), which failed to generate any type of significant bounce on Wednesday.  As discussed previously, my belief is that RUT has entered an intermediate down trend; the recent surprise to the downside would seem to validate that thesis.

In conclusion, it's unlikely that the final low occurred in Wednesday's session.  Bulls will need to defend support in the 1940's to ward off the potential of a larger correction.  In the event of a breakdown at support, bears start to open up the game; and if that happens, then we'll discuss those options in more detail in a coming update.  In the meantime, trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX and RUT Updates, Plus Yellen (Interpreted)

On Tuesday, Janet Yellen gave testimony before Congress.  She does this twice a year, just after the conclusion of her semiannual "Run for the Presses" Charity Marathon.  In her speech, Fed Chairmanwomanperson Yellen stated that, despite the recent strong job reports, she won't conclude the economy has recovered until the following metrics are met:

1.  Wages must rise.
2.  Discouraged workers must return to the workforce.  Or, at the very least, they have to cheer up a bit.  The last thing this economy needs is a bunch of jobless workers milling about looking discouraged!
3.  More than 47% of late-night infomercials must be selling courses on how to get rich quick by flipping houses.
4.  Donald Trump must file for bankruptcy again.
5.  Taco Bell must quit messing with our heads by resurrecting, then removing, the Chili Cheese Burrito from its menu.  This type of madness does not occur in healthy economies!

Okay, I admit the last one on the list is mine.  The first two are true, though.  Mostly.  Unfortunately, I didn't have time to listen to Yellen's entire speech because I had to depart her reality in order to rush off to an important appointment back on the planet Earth -- but numbers 3 and 4 on the list sound about right.

Yellen also pledged to remain vigilant about asset bubbles, and to make sure that no market would be left without one.

Regarding the end of QE-Infinity -- or, as Senator Charles Schumer called it (alternately), "QE2" and "QE3" -- Yellen had the following to say (modestly rewritten by me for clarity):  "Here are a bunch of words strung together at random.  It will sound like I'm saying something, but really I'm not.  Did I ever mention that I excelled at essay questions in college?  Because I did.  Anyway, enough about me!  The bottom line about tapering QE, if we can consider this a bottom line, is that 'It's not set in stone.'  Furthermore... Hey look, there goes Elvis!"

So it appears that bulls have the all-clear for continued QE into the 21st century and beyond.  Wait a second (checks calendar), we're already in the 21st century, aren't we?  What a let-down.  In that case, it sounds like QE will continue for at least another few months, or years, or decades -- or possibly centuries.  Perhaps QE will simply become a perpetual part of the investment landscape; an ongoing reminder that money does indeed grow on trees, and that the Constitution of the United States only has value because it's a really old piece of paper that contains the autographs of some famous historical figures.  Well, they used to be famous, anyway, back when we still taught history to school kids.  Tough to say if they're still famous nowadays -- in a recent national survey, the majority of American teenagers identified Alexander Hamilton as "a hot brand of clothing."

Bulls did get a little nervous when they read the full Fed report that accompanied Yellen's testimony, and noticed it said: "Valuation metrics in some sectors do appear substantially stretched — particularly those for smaller firms in the social media and biotechnology industries..."

Of course, we all know what an expert the Fed has proven to be on market valuation.  So it was a relief to hear that they're only worried about a few "smaller firms in the social media and biotechnology industries," such as Yelp (YELP).  Not coincidentally, "Yelp," is the exact same sound CEO's make when they realize their company is about to go bankrupt.

But the message from the Fed seems to be:  The rest of the market is almost certainly fairly-valued.  Trust us.  There's nothing to see here; move along!

This Fed's approach of singling-out specific market sectors is a bit odd, and almost strikes me as a strategy designed to focus attention on some of the more obvious bubbles in order to detract attention from the rest of the bubbles that are forming ("Yes, arguably," he says, with a nod to the optimists).  It's as if the Fed were trying to reassure us by saying: "See, we're not totally oblivious to bubbles!  In fact, we're very alert, and we've identified these specific bubbles right here!  And we're extremely wary of them.  Hey look, there goes Elvis!"

The good news is that there's more riveting testimony still to come today!  I realize I'm probably being overly optimistic, but my sincerest hope is that, for today's testimony, Senator Charles Schumer will be solidly briefed about which QE program we're currently in.

Moving on to the charts, last update suggested a near-term target of 1978-82 for the S&P 500 (SPX), and noted that same zone should be resistance.  Monday hit an intraday high of 1979.85 before stalling, and Tuesday saw the market run to 1982.52 before reversing.  Tuesday's price action left a bearish reversal bar on the daily chart (price opened higher, hit a higher high, then closed red).  And Tuesday's overlap at the price point of 1969 suggests that the rally from 1952 to 1982 was an abc.

Note that the preferred intermediate count still anticipates new all-time highs, the near-term question is how the market gets there.  While the abc structure suggests the rally was corrective and hints at the count shown below in blue and red, the abc does still leave bulls the option of an ending diagonal fifth wave rally, as shown on the chart below in black:

Without publishing 50 more charts, there are a few charts that suggest bulls have a shot at seeing new all-time highs directly, via the ending diagonal.  The Dow Jones Industrial Average (INDU), for example, would probably look better with a couple more thrusts to new highs, as would the Transportation Average (TRAN).  As discussed in the last update, the Russell 2000 (RUT -- below) appears to have entered a down trend -- but with Tuesday's new low, has potentially completed five waves down.  This means that, near-term, it may be due for a more substantial reaction rally.

In conclusion, bears accomplished what they needed to on Tuesday, but bulls aren't out of the running by any means, and we could still see SPX chop its way to new highs over the coming sessions.  RUT, on the other hand, appears to have established a new intermediate downtrend, but in the meantime may be due for a near-term reaction rally.  Today's session should offer a lot of information on both markets.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX, RUT, and Taoist Farmer Update

In a perfect world, I should now be able to resume regular updates.  Of course, this is not a perfect world, but I'll go ahead and tempt fate by stating I feel 87.6% certain that there are presently no additional shocking crises lurking in my (immediate) future.  I'm still allowing 12.4% odds because, let's face it, the only constant in this world is change.  Indulge me a brief digression into an old Taoist parable that my dad has been telling me for as long as I can remember.  It goes something like this:

An old farmer relied on his horse to work his crops for many years -- until one day the horse ran away.  "We're so sorry!" his neighbors remarked,  "How terrible for you!"

"Maybe," replied the farmer.

The next day, the horse returned, bringing three wild horses with it.  "What a great stroke of luck!" exclaimed his neighbors happily.

"Maybe," replied the farmer.

A few days later, the farmer's son was thrown while trying to tame one of the wild horses.  The son broke his leg badly.  "How awful!" his neighbors lamented.

"Maybe," replied the farmer.

The next morning, military officials came to the village, seeking to draft young men for war.  Seeing the son's broken leg, they passed him by.  "Wow," said the neighbors, "how lucky for your son!"

"Maybe," replied the farmer.  And so on...

And with that out of the way, let's take a look at the charts.  Last update (June 25) concluded that there was probably more near-term downside in store but that it should then resolve with new highs.  That expectation was correct on both counts, though the lower near-term low was very marginal.

For the current charts, we'll start off with the Russell 2000 (RUT), whose recent peak at 1213 is practically a case study in technical analysis.

Next is the S&P 500 (SPX), which captured my May if/then target of 1978-89 and appears to be working on a fourth wave:

Moving a little closer on SPX, another leg down would be reasonable after a reaction rally -- but in this market, bears have little in the way of guarantees.

In conclusion, over the near-term, ideally I'd like to see a rally to 1978-82, followed by a decline below 1952.  Long-term, the trend remains up, so bears still have their work cut out for them before putting a dent in the big picture -- of course, as the old Taoist farmer would tell us, the only constant in this world is change.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX and INDU: Bears Take Control of the Short-term

In the last update, I noted that the S&P 500 (SPX) could be nearing a fourth wave correction, and it now appears that correction may be underway.  As of this exact moment, this is a market without clear intermediate trades, and personally I'm limiting my trades to short-term only until lower-risk entries present themselves.  The SPX chart below helps illustrate why.  I don't want to get too far ahead of the price action, but not shown on the chart is the potential that the correction could retrace as deep as the 1870's -- that's not a prediction yet, just something to keep in mind.

We find a similar situation in the Dow Jones Industrial Average (INDU), though here the current decline looks like it could be the c-wave of an expanded flat:

On the daily SPX chart, we can see price briefly overthrew long-term trend resistance (which I discussed in May) before falling back inside.  This is sticky territory for longs, as the price chart below reveals some similarity between the current pattern and the price action of late 2009 and early 2010, when SPX tested and established the upper channel boundary of the blue trend channel.  SPX overthrew the channel in that instance too, then ultimately fell back into a steep correction before moving higher again.

In conclusion, while all indications are that we're still in a bull market, due to the market's proximity to long-term resistance, this may not be the most opportune place for intermediate longs.  If this is indeed a fourth wave correction, then it should eventually resolve with new highs -- but as of this moment, the short-term trend is down and momentum confirmed the recent lows, which means the edge goes to bears for lower prices over the short-term.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.