SPX and NYA Updates

In the last update, I talked about how it was tempting to stick a "4" label at 1990.10, but that chop zone patterns were not to be trusted, and there really was no solid evidence to assume wave 4 had ended at that level.  The market has since gone on to invalidate 1990.10 as the bottom of a fourth wave.

The pattern has continued to morph its way into increasing levels of complexity, and, as of this exact moment, anyway, there are nearly infinite ways to label the wave structure.  A detailed examination of the charts reveals that I could easily draw up at least 20 different wave counts of the same existing structure -- and that means there's still no room for arrogance or overconfidence about the near-term.  We're simply going to need to see how the market reacts over the next couple sessions to begin narrowing down the options.

Despite the plethora of near-term options, as previously noted, I think the break of 1990 has to be viewed as favoring the bears -- either immediately or after some more backing and filling.

I've drawn up a chart of the two most obvious wave counts (and one variation therein), but it's not a bad idea to continue "expecting the unexpected" until there's more clarity.

 

The 5-minute chart reveals my thought process in detail, given the available evidence so far.  This chart only shows the bear count and its first variation.

 

NYA turned out to be the canary (again!) on Monday, as it made a new low while SPX feigned a corrective decline.  The potential falling wedge in red is either a terminal pattern or the precursor to a steep drop -- we should know fairly directly.  Due to the nested third wave potential, I would not try to step in front of any pending declines until there are solid signs of a basing pattern.

In conclusion, we probably have to view SPX's failure at 1990 as bearish until proven otherwise -- although, as noted, this break does not preclude a near-term rally.  Trade safe.

SPX, INDU: A Look at the Long-term from within the Chop Zone

And here we are again.  Last update noted that: "Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet."

I couldn't have said it better myself.  (Wait... what?)

I think we're still there.  Believe me, I'm just as tempted as the next Elliottician to stick a "4" label at 1990.10 SPX and go back to watching TV.  And maybe that's exactly where it should go -- but all the market has done is range-race through the chop zone, and until we sustain trade outside the range, there are still options for more chop.

Let's start with the obvious counts:

And now for something completely different (with a nod to Monty Python):

Bulls probably want to see SPX follow a path similar to the one laid out in red on the first chart.  In other words, a bit more coiling, THEN a break of the high.  Bears want to see the market drop straight down below 1990.10 without breaking 2011, as that would imply a third wave decline, and put the whole wacky extended fifth wave retrace thing I talked about last month back on the table.

INDU doesn't quite jive with SPX -- and there are implications here, which I'll discuss in more detail as it becomes appropriate.

Also, today is Monday the 8th, and you know what that means!  It's been a long-standing tradition that on every Monday that falls on the 8th of a month (if that month is September), we update the long-term charts!  I'm sure readers are tuning in from all over, in anticipation of this big event.  So, let's take our traditional "Monday the 8th of September" look at the long-term charts!

INDU:

SPX:

In conclusion, chop zones can mess with our heads -- so we should stay alert to that fact.  Human thought moves faster than just about anything in the physical world, so our natural tendency is to think the market should move as fast as our imaginations do.  But it doesn't.  While it is entirely possible wave 4 bottomed at 1990.10, we really have no guarantees that it won't become more complex.  We also have no guarantees that 1990 was the bottom of a fourth wave; and should probably not completely write-off the bear options just yet. 

The bottom line here is that traders should stay on their toes and check their assumptions at the door as long as the market remains range bound.  Trade safe.

SPX, NYA, COMPQ: Careful, We're Still in the Chop Zone

Everyone will want to make a definitive call after yesterday's action, but I don't think there is one yet.  Let's start off with the 2-minute SPX chart to illustrate why:

This is a market that's still within a chop zone, and chop zone patterns are unreliable -- and frequently deceptive.  The best trade for chop zones is usually to trade the edges, which works until it doesn't.  Due to the unreliability of chop zone patterns, I'm very hesitant to try and draw a definitive conclusion while the market's still inside that zone.  My first inclination on the chart above is actually to view the bullish count as more reasonable, but that flies in the face of yesterday's daily candle -- and as noted, one can't trust chop zone patterns.

Let's look at the big picture, though, for why bears might have something to cheer about.  COMPQ peaked where I had blue V drawn, and now has enough waves to mark a completed impulse.  That, by itself, isn't the whole story, though, as we do not yet have confirmation of a trend reversal.

NYA finally eked out a new high, and also has enough squiggles to be counted as complete.

The bottom line here is that, given the incredible mess that is the near-term SPX chart, it's simply too early to make a definitive intermediate call.  We have a couple levels to watch to start ruling out certain patterns, and the first step toward more clarity is for SPX to clear the chop zone.  Trade safe.

Bonus Chart, posted half an hour after the open:  Much as I'd like to ignore this potential or pretend it doesn't exist, it does exist, so I feel obligated to share it.  Until bears break the key overlap, this remains wholly viable, and it's certainly something to be aware of.

SPX and INDU: Near-term Options and the Key Levels

Tuesday continued the somewhat complex sideways move that began at 2005 a week ago, and while there are a lot of options still on the table, there are now some clear levels to watch.


Let's get right to it via the SPX 2-minute chart.  My personal trading really pressed me for time on this update, but I've nevertheless detailed the options in detail (in a detailed fashion), along with the qualifiers for each option on the chart below:

Instead of reiterating all that on the 15-minute chart, I'm simply showing a representation of the conventional impulsive rally for wave (5).  This should not be construed as an "endorsement" of that count until SPX breaks 2011.

INDU presents an interesting pattern, one that should be watched in conjunction with SPX:

In conclusion, the market has left myriad options open, but the pattern allows us to put qualifiers on those options, and we should be able to narrow them down directly during today's session.  Trade safe.

SPX Update: Hey, I thought I Had Monday Nights Off?

On Friday, the market did basically nothing.  Friday's trading was about as exciting as eating a bowl full of unflavored Jello.*

*Jello is a registered trademark of the Jello corporation, but, as far as I know, the concept of "unflavored Jello" as the most boring food on earth is original.  Also, in Mexico, Jello would be pronounced "yellow," no matter what color it is.

Anyway, despite Friday's less-than-exciting session, I still spent a bunch of time looking at charts last night, before determining that there really isn't anything to add to the last update.  Technically, Monday is supposed to be one of my nights off from the updates anyway, so I'm just going to update the 15-minute SPX chart, reprint a paragraph from Friday's update (below), and type whatever else pops into my head.

From Friday:

It certainly appears that, at best, SPX is embarking on a fifth wave rally, so we may see a new all-time-high before a larger correction begins.  But even that isn't a given, as the extended fifth wave count discussed on Wednesday remains viable.  On Wednesday, I detailed that the extended fifth retrace would be expected to decline to 1984-90, then bounce back to retest the all-time-high before declining again (into the 1940's or beyond).  That retest could even take the form of a marginal new high, in the event of the b-wave of an expanded flat.

In conclusion, sometimes I regret having developed the expectation that all my updates have to end with "in conclusion," followed by some conclusion or other.  Frankly, I don't always feel like I have a conclusion.  But sometimes I do feel like I have a concussion, especially after listening to a speech that features Janet's yellin'. 

Sorry, what were we talking about again?

Oh yeah:  In concussion, there's not much to add from the last few updates, beyond the potential near-term structure noted on the 15-minute chart for a small nested third wave of wave 5.  In the event the rally is wave b of the more immediately bearish count, it would be need to complete fairly directly.  Trade safe. 

SPX and COMPQ: Giving the Bears Some Airtime

On Wednesday, I noted that the wave structure suggested the market was due for a correction toward a first target of SPX 1984-90, the upper edge of which was reached on Thursday.  We discussed two possible wave counts -- a small fourth wave vs. a larger extended fifth wave retrace.  Both counts remain viable.

I generally don't like top calling in bull markets unless I have really clear signals, like we did last month -- but as of what's in the charts right now, it's very tempting to call an impending top here.

Let's start with the SPX 15-minute chart.  It certainly appears that, at best, SPX is embarking on a fifth wave rally, so we may see a new all-time-high before a larger correction begins.  But even that isn't a given, as the extended fifth wave count discussed on Wednesday remains viable.  On Wednesday, I detailed that the extended fifth retrace would be expected to decline to 1984-90, then bounce back to retest the all-time-high before declining again (into the 1940's or beyond).  That retest could even take the form of a marginal new high, in the event of the b-wave of an expanded flat.

The more bullish count isn't shown here, but would be that the wave labeled as green 5 only marks wave i of 5 -- that option would stretch wave 5 into a larger rally.  I'm handicapping that option at the moment, so will discuss it in more detail in a future update as and if it becomes appropriate.

The blue up-sloping channel on the chart below represents the first warning zone for bulls.

The SPX 2-hour chart adds additional perspective.

The NasDUCK also has enough waves in place for a complete rally:

In conclusion, bulls still have the long-term trend in their favor, but signs are suggesting that an intermediate trend reversal may be drawing near.  Given what's in the charts as of today, anyway, it appears that upside reward is becoming overshadowed by downside risk.  Of course, the market always reserves the right to do something unexpected and morph all this into a more bullish wave structure, and I'm never closed to that sort of option and won't fight it if it happens -- but if that were to happen, we should be able to catch up with it fairly quickly, and adjust on-the-fly in real-time.  Trade safe.

SPX, NYA: Correction Near?

Yesterday, SPX captured the 2004-2010 target zone.  Interestingly, the intraday high was 2005.04 -- and that makes this only the second time in history that the price of the S&P 500 has traded within 9 points of the year (in this case, 2014) that it's trading in.  The last time this happened was in the year 9 A.D., when SPX was trading at zero.

Rumor is that, even back then, certain permabear market services were sending out alerts to "go fully leveraged short" if the market "ever advances from zero and trades at any real number," with "stops at SPX 2000."  My understanding is that some of those subscribers' distant kin were finally stopped out this week, for a tragic loss of 1999.99 points.  It pays to consider both sides of the trade!

Anyway, we're finally into the zone where at least a minor correction would be reasonable -- though this type of thing is primarily for aggressive traders.  Even considering trying to catch a turn here is essentially front-running, since the up-sloping trend channel is still intact.

The question now is whether SPX has another fourth and fifth wave left to unwind, shown on the chart below as green 4 and 5.  I think it's reasonable to assume that it might, but I don't think it's a given.  In a moment, I'll share some more thoughts regarding both counts.

Let's skip over to the NYA, then come back to SPX.  NYA's chart is telling us one thing with high probability:  odds are good that the "final" all-time-high isn't in yet for SPX.  This is because NYA has a three-wave corrective decline, which means that correction should ultimately be retraced completely, to put NYA at new highs as well.  What NYA's chart is not telling us is how we get there -- we can make assumptions in this regard, but any assumptions are only that. 

The easy and obvious assumption would be that we have another fourth and fifth wave left to unwind, shown below in red.  Longer-term, that's probably what bears want to see happen, because it would mean this wave at least has a chance to complete relatively soon.  But there's still another possibility, and that's for the rally to have been part of an ongoing correction, such as a triangle (shown in black).

So, how do we sort one option from the other?  At this moment, we really can't.  Considering that there's still nothing in the way of a notable correction on the charts at present, there's very little info to parse in that regard.  Thus, we'll watch the shape of any pending correction:  If it appears to be an ABC into the red (4) zone, then we'll know to expect new highs to follow fairly directly; if it appears to be a five-wave impulsive decline, then we'll know to expect a deeper leg down.

If a deeper leg down were to unfold immediately, thus stopping NYA from reaching new highs, we would probably have to treat that as a significant buying opportunity, as that would suggest the rally in SPX was only wave 1 of a larger structure.  This is one reason why, earlier, I mentioned that bears probably want to see new highs more directly.

The main reason I'm considering the potential of a deeper correction is because SPX still has me considering the possibility that the rally from 1928 was all part of an extended fifth wave.  The blue path on the chart below would be the typical expected retrace if we're dealing with an extended fifth.  If SPX was not an extended fifth, then the first pending correction should be minor, and SPX has a shot at reaching Target 2 in the relatively near future.  Again, we'll simply have to watch the structure for signs of a three-wave or five-wave decline.

In conclusion:  near-term, the market has a decent chance of beginning at least a minor correction.  Intermediate-term, it's unlikely the final highs are in.  Longer-term, we may be close to wrapping up a large five-wave rally, in which case an appropriately large correction will ensue afterwards -- however, that still appears to be at least a few turns down the road, so probably not what we should be focused on just yet.  Trade safe.

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