SPX, NYA, RUT: Bulls Still in the Backseat, Asking: Are We There Yet?

Last update here at Minyanville (July 18) had us watching for new lows one way or another.  The alternate count in that update was for an expanded flat in the S&P 500 (SPX), and for a traditional ABC in the NYSE Composite (NYA).  I do feel the need to apologize to Minyanville readers in that I did not know that Minyanville would be on hiatus during the two weeks after that update, and so I did not go into any detail on the rules of the SPX alternate count of an expanded flat.  I just marked the charts with the "alt." labels, and figured I'd be able to address the wave rules on Monday, if the market dictated that it was appropriate to do so.

Had I known there would be no Monday update, then I'd have gone into greater detail on Friday, July 18.

I read back over that update yesterday evening, and I cringed a bit for Minyanville readers, because the rules I had labeled on the chart were for the preferred count (a traditional zigzag ABC), and not for an expanded flat.  I did mark the charts with the alternate labels placed where I thought the waves might end -- I had SPX labeled to top at 1990, and  NYA at 11,050 (the final highs ended up being 1991.39 in SPX and 11,058.96 in NYA).  I also mentioned that the alternate count would "provide a stellar short opportunity" if realized.  But I gave nothing by way of further explanation -- again, I figured I could go into further detail in Monday's update.  I didn't learn there would be no Monday update until a couple days later. 

In any case, my apologies for not detailing everything that very day.  The recent peak was the most well-telegraphed move of the year (as far as I'm concerned), and as close as I've ever seen to the market "ringing a bell" at the top.  The subsequent waterfall decline was even telegraphed in advance, after wave 1 of C bottomed at 1967.  Folks well-versed in Elliott Wave Theory probably needed no further explanation than the labels shown in the update of July 18, but for folks who are not well-versed, let's get caught up.

In Elliott Wave Theory, one form a correction can take is called a "zigzag" -- in that form, the start of wave A marks the price high, then wave B retraces part of wave A, but does not exceed the high of wave-A (in fact, a zigzag structure is invalidated if wave-B exceeds the start of the A-wave).  Wave-C then makes a new low.  That was the preferred count as of pre-market on July 18. 

Another corrective structure is called a flat, which can take several forms.  One possible form is called an "expanded flat."  Expanded flats behave much differently than zigzags; in an expanded flat, the B-wave high actually exceeds the start of wave-A.  In other words, in a bull market, the B-wave of an expanded flat makes a new all-time high.  That was the alternate count as of pre-market on July 18, and, as I wrote then:  "This chart also reveals a glimpse at an alternate count that, if realized, would almost certainly be an excellent shorting opportunity."

This 5-year bull market has seen several expanded flats; the most memorable of them culminated with wave-C becoming the 2011 mini-crash.

I believe SPX is currently in the C-wave of an expanded flat, though I believe it is at a smaller wave degree than 2011, and -- while I can't completely rule the following out -- I believe it is unlikely to be of the magnitude of 2011.  The main challenge at the moment is that the decline has already met and exceeded all my initial targets.  It has also met some of the adjusted targets, as of Friday's session.  And it doesn't look done yet.

Let's take a look at the 30-minute SPX chart to get our bearings.  We can see based on the wave count, and based on RSI, that it's unlikely wave-C is entirely complete.  More likely we are completing wave (3) of C, though it's not even entirely clear if wave (3) is finished.  Based on the Russell 2000 (RUT), wave (3) may still have room to run (RUT chart to follow shortly).

Before coming back to SPX, let's take a look at RUT.  Unless bulls sustain trade north of 1133, new lows appear quite likely for RUT.  We can see that red wave C is still a ways from its standard targets, which leads me to wonder as noted above on SPX.

RUT's near-term pattern seems to fit and confirm the idea that wave C isn't complete in SPX.
 
And now back to SPX for a broader view.  On the big picture SPX chart, the current expectation is two-fold:

1.  The decline isn't finished yet for the near-term.
2.  The final high isn't in yet for the long-term.

Looking at the above chart, one can almost hear bears saying, "No way there will be new highs!  Not after that decline!"  My only reply is:  Remember 2011.  Everyone said the same thing then. 

But -- is it possible that 1991 SPX is "it" for the bull market?  Or at least "it" for a long time?  Sure it is.  But here's the beauty of the whole thing:  we don't need to guess.  Right now, the pattern still points lower, so we don't have to get hung-up arguing about long-term charts.  Bears can stay bearish for the moment, as far as I can tell.

But the pattern on SPX looks like a clear expanded flat, so after the market completes five waves down, then we'll start looking for new highs to follow.  And the wonderful thing is that the same market that told us to short any rallies (back on July 18) should also warn us if we should start thinking bigger correction.

NYA is in a slightly different wave structure than SPX, and I believe it will give us fair warning if this decline is only the beginning (instead of the end).

On the NYA chart below, we can see a very clear three-wave ABC is forming.  If NYA completes that, and then goes on to form a fourth wave rally and a fifth wave decline (which would be labeled as red 4 and 5 -- not shown), then we will have an impulsive decline in NYA.  And we would thus know to forget about new all-time highs for the foreseeable future, because an impulsive decline would suggest a much larger correction was unfolding.

So, in conclusion, I feel the patterns are more clear than they've been all year, and I believe the charts are continuing to provide us an excellent road map that has very clear signposts.  And those signposts should give us advance warning about the market's next moves.

Presently, I do not believe the charts are suggesting a final low in place, but it's possible that a fourth wave bounce may be due.  How high that fourth wave will stretch is highly debatable, since waterfall declines do not lend themselves to the anticipation or projection of bounces -- they lend themselves to trend following.  C-waves are third waves -- and being early on third waves is not unlike trying to snag pennies off a railroad track in front of a speeding freight train.  Maybe you'll even get away with a few, but does the risk/reward make much sense?

Longer-term, I currently expect this decline is likely to resolve with new highs.  But part of the value of Elliott Wave comes not just from anticipation, but from understanding the market's position in the wave structure, and thus knowing when not to attempt anticipation.  Since I know we're in a third wave decline, and I know third waves are powerful waves that crush traders who jump in on the wrong side too early, I'll be watching for signs of base-building as the signal to flip long.  Trade safe.

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Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX, NYA, COMPQ, INDU -- Targets Met/Exceeded, and a Look at the Big Picture

The old expression is:  "They don't ring a bell at the top."  Well, "they" may not, but in this case, the charts sure did.  Enjoy this one, because moves that are telegraphed so well in advance don't come along often.

To recap:  We knew to look for a peak near 1990 SPX almost a week before the market got there.  Price hit the target area, and then we got confirmation of the reversal via an impulsive first wave off the high.  On Monday, we knew to watch for a second wave bounce, which we got.  On Wednesday, we knew to watch for a waterfall if SPX broke 1967 -- and then on Thursday, we got the waterfall.

It doesn't get any better than this, so enjoy it while it lasts.  Most of the time, the market plays coy and ambiguous.

I am assuming most readers have made good profits recently -- so remember that, when trading, there's a time to expand your capital and there's a time to protect it.  Expand it on the high-probability, low risk/reward plays like we just had.  Protect it when the entries become high-risk and ambiguous.  I'll be frank -- that's a discipline I myself have not entirely mastered, but my own experiences there have taught me a few things I'd like to share.

My biggest strength as a trader, and my biggest weakness, is the exact same trait:  I'm ambitious.  And I believe it's in the nature of ambitious people to want to "be in the action" constantly, and thus to try to keep expanding indefinitely.  But nothing in life works that way.  Everything "breathes," in a sense.

Know when it's time to stop expanding, and when it's time rest for a while  After a period of expansion, allow yourself time to consolidate and solidify that victory.  Don't be like the gambler who wins a huge jackpot, then gives it all right back because he doesn't realize (or accept) that it's time to cash out.  Conserve capital and wait patiently for the next expansion point -- which will either be a low-risk entry, or a clear pattern (or both).  That moment may come quickly; sometimes expansion follows upon itself almost immediately.  But it may not.

The point is that we can't force things; we should try to let the market come to us.  When it does, then we should go with the flow -- take what it gives us, and let the waves do their work.

It's in our natures to want more.  So we sometimes fight our way into positions that we know are ill-advised -- and then we fight our way out of positions when we know we should just let them ride.  But if you can master those two self-defeating tendencies, then your account will grow by leaps and bounds.  There will still be reversals of fortune, but they will come less frequently, and the increases will ultimately outweigh the reversals. 

I think trading attracts the ambitious, so I have to believe these are almost universal struggles for traders.  So your ambition got you into trading -- great.  Now if you want to keep trading, then you must learn to temper ambition with discipline.

It might help the ambitious to consider what a friend once told me: "You'll get more done in six days than in seven."  Meaning:  Sometimes the most productive thing we can do is nothing.

"Nothing" as in:  Don't force trades.
"Nothing" as in:  Leave your position alone once you're finally in that trade you wanted all along. 

Just as a farmer will fail if he doesn't know in which season to plant his crops and in which season to harvest, a trader will fail if he doesn't know when to take action and when to sit still.

Aim to learn the differences that define which moments are which -- and then, more importantly, act (or do nothing) based on that knowledge.  In the end, that is what separates the long-term successful traders from the shooting stars (who grow their accounts rapidly and then flame out just as quickly).

Many traders ultimately consume themselves under the compulsions of their own raw ambition.  There is no lasting success without discipline.

Okay, enough Zen talk!  Let's get to the charts.

Let's start off with NYA, since we owe NYA a debt of gratitude for fattening our accounts by telegraphing this turn well in advance:

COMPQ, which has yet to make a new low -- but which also allowed not one, but two great low-risk entries, so it's hard to complain.  Bears should be careful here:

The two-minute SPX chart tells us that it's likely there will be at least one fourth and fifth wave unwind before any meaningful bottom.  SPX is still trading within the waterfall channel, and a breakout there is the first step for bulls to begin to have a chance.  But, generally speaking, the first breakout from a crash channel is simply a deceleration of the trend, as opposed to a full reversal.

Don't pay too much attention to where the (3) and (4) fall on this chart.  There are no particularly reliable targets at this exact moment, and all my "official" targets were already reached.

Finally, the question everyone's asking now is, "Where are we in the big picture?"  Well, that's an issue of some debate, as we'll see in a moment.  Let's take a look at the obvious answer first, via SPX:

INDU disagrees.  But there may still be an answer for INDU that brings the blue count in SPX and INDU into agreement -- we'll call it the Rodney King, "Can't we all just get along?" count.  I didn't have time to label that count, but I noted it in the annotations:

 
Incidentally, you've probably noticed a lot of charts contain after-hours annotations from the forums.  If you would like to become a member of our private forums, and you have donated recently, then please go to the forum link (here) and create an account.  After you've done that, then send an email to the same email address that the donations go to, which includes your member name and the email address you registered at the forum.  That will grant you access to the forum (please allow up to 48 hours).  It's an exceptional group of folks with great market insight, charts, and humor.  The atmosphere there is casual and fun, but respectful and collegial at the same time (unlike many forums around the web).

In conclusion, there are no signs of a significant bottom as of this exact moment.  And at this point, the standard targets have been exceeded, so things will need to be watched on a session-by-session basis.  At present, I do still believe this is a C-wave decline that will ultimately resolve with new highs, but I also think the market will give us some decent signals to let us know when the decline is over.

The approach to this market should be different for someone who's looking to protect profits on shorts vs. someone who's looking to go long for new highs.  Regarding opening longs in this market, the approach I'll take from here will probably miss the exact bottom by a few points -- but we don't have to anticipate every single move a week in advance to profit.  There's a time to anticipate, and there's a time to let the market lead -- and for me, anyway, this currently qualifies as the latter.  Trade safe.

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SPX, INDU, COMPQ, NYA, HYG:TLT -- Market Teetering on FOMC Day

First off, I want to thank everyone who gave a warm response to the issue mentioned in the last update.  Your support is truly appreciated!  (And you have yourselves to thank for the very existence of today's update; I stay true to my word.)

Today is FOMC day, and pundits almost unanimously expect the Fed will make a series of vague and inconclusive statements regarding past, present, and future monetary policy.  Afterwards, analysts will argue vehemently about what exactly Fedchairmanwomanperson Yellen meant when she said (things such as): "Soon, but not too soon!  Also not too late.  And certainly no later than too soon.  Whichever is greater!"

The market will gyrate wildly as traders try to determine if they should go short, cover shorts, go long, sell longs, or quit trading altogether -- all based on whether Yellen seems to be dovish, hawkish, or hummingbird-ish (who decided the Fed's stance should equate to birds?).

Yellen's overall demeanor will also be a factor.  Remember that one FOMC meeting a few years back, when Ben Bernanke suddenly got agitated and pounded his fist on the table, and the S&P 500 (SPX) immediately rallied 30 points?  Later, reporters learned this whole scene was because Bernanke was trying to smash a bug, and the market gave back all 30 points in less than 10 minutes.  If you don't remember that meeting, it's probably because I made it up -- but, nonetheless, those types of crazy moves are fairly common on FOMC day, and we should prepare for them.  One such preparation that's recommended by veteran traders is to either keep your positions small, or to have your local Suicide Hotline set to speed dial.

Moving to the charts, Monday saw the anticipated new low, and that new low thus seems to confirm an impulsive decline.  Assuming last week's highs hold, then things appear reasonably straightforward.  If that high fails, then all bearish bets are off and the preferred wave count is reset.

As I've looked at the charts tonight, I can't help but think bulls are going to do their best to make things interesting.  The rally from Monday's low counts best as an impulse wave, so a retest of the highs may be in store.  Keep in mind that the first directional move out of the FOMC debacle is usually a head-fake -- so that may be just what the doctor ordered for a c-wave that falls short of the all-time-high, but gets everyone looking up.  We'll start with the 2-minute SPX chart:

 Next the 10-minute chart:

NYA:

COMPQ... if COMPQ rallies directly, there may not be enough room for an ABC and things might get interesting.  Of course, there's no law that says COMPQ has to be in the exact same wave count as SPX or INDU -- in fact, it frequently is not.

INDU:

Finally, the HYG:TLT ratio chart is on a disconnect from the equities market:

In conclusion, nothing unexpected has happened yet, so the bears have to continue to be given the benefit of the doubt.  In the meantime, though, a bit more rally would not be out of order.  One count that's not shown or discussed is for a smaller expanded flat that peaks between 81-85, and I mention that because it's not safe to assume that 85 will be broken if 81 is claimed by the bulls.

A lot will be decided in the next couple sessions.  I can't promise a super bullish resolution on a breakout, but a breakdown of Monday's low would have very bearish implications.  If the ABC rally is unfolding, bears may have to wait a couple sessions for their day in the sun.  It's a really tough call here, because many of my other indicators are confirming yesterday's drop as "real" (as opposed to corrective), so there's no easy answer regarding whether the ABC will unfold, or whether wave (2) is already entirely complete.

But the short version of the "bottom line" is that I remain bearish unless the all-time-high is claimed.

Keep in mind that the entire month of July has essentially been one big chop zone, so moves inside that zone will be full of sound and fury, and range-racing now would be normal.  Also keep in mind that, at this point, patterns that form inside the zone on smaller time frames will often be fakes, so approach near-term patterns with caution.  Trade safe.

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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.