SPX, INDU, COMPQ: Market Reaches Inflection Point

I've been pretty openly bearish on the market since September 24 (See: "As Good as It Gets" for Bears), and SPX has since performed in line with expectations, and captured (and slightly exceeded) my downside targets.  But we have to recognize the market has now reached an inflection point.

This is where it's always tempting to overstep our bounds as traders and analysts.  There are certain patterns the market forms which are predictive -- for example, predictive patterns are what caused me to think a top might occur near SPX 2018-28, and caused me to think we'd decline to at least 1935-42.  But now the predictions have come to pass, and we've moved from a predictive market to an inflection point.  The reality is, with the market is its current position, no one on the planet can say with certainty what form will develop in the intermediate wave structure from here.  Not just yet, anyway.

Let's start with INDU for illustration.  I've put (4) and (5) in gray because they are unknown variables in the equation at the moment.  If INDU wants to form an impulsive decline, then it needs a fourth and fifth wave.  But we simply don't know if it wants to form an impulsive decline.  If it wanted to simply form an ABC, then it counts as potentially complete.

The rally off yesterday's low was clearly impulsive, and I mentioned this to everyone in the forums before the close yesterday.  Outside of expanded flats, impulse waves do not occur in isolation -- so while this chart doesn't give us conclusive intermediate answers right now, it does suggest further upside in store over at least the near-term.

 
SPX has so far found support near the long-term uptrend line:

Let's take a look at NYA, which also suggests a near-term rally.

The one-minute chart for NYA shows a pretty clear extended fifth wave, and that suggests the market may form a complex double-retrace correction.  Though I did not detail that on the chart, keep that potential in mind for now:

COMPQ also highlights the importance of the current inflection point.

In conclusion, the market has progressed from intermediate predictable into "intermediate guesswork" territory.  Near-term, a rally is expected, due to the impulse wave off the low.  If that rally forms an ABC, then we'll know with higher probability whether to expect new lows.  If it becomes impulsive, we'll know to expect the rally to continue higher for at least one more leg.  Trade safe.

SPX, INDU: Ignoring the Bulls

I have to admit, after the long chop zone we recently endured, it's been a while since I enjoyed charting this market.  But I enjoyed charting it last night.  I think the charts are pointing to some high-probability options right now.

Let's start with the SPX 3-minute chart, because I think this points to two reasonably clear near-term possibilities, and this will provide perspective on the charts which follow.

The 15-minute chart provides some additional perspective.  To me, Monday's break of 1965 says that the odds are very good that this decline isn't over.

 

Next is the SPX 30-minute chart.  For now, targets here are unchanged, due to the expanded flat possibility noted above.  If the market begins to confirm the nested third wave as currently labeled, then targets will need to be adjusted lower.

 

Let's take another look at the expanded flat potential for a continued chop zone, via INDU.  We can't yet ignore the possibility that the market will chop around further in this price zone, as it has on more than one occasion already.  The upside for bears in the event of continued chop would be that it would form a more solid topping pattern.  The downside would be "much patience required" in the meantime. Sustained trade below SPX 1967 would make an immediate decline more probable. (continued, next page)

SPX and INDU: 1965 SPX Critical Support

Friday's move has simplified the charts a bit, which is always nice.  By all appearances, 1965 SPX has become critical support.  1991 SPX is still first important resistance, though decidedly less informative of the market's intentions if broken; whereas a breakdown at 1965 would suggest a solid decline of at least 30-40 points, with good potential for 55-65 points (or more) before a decent bottom.

We're going to start with the SPX 30-minute chart, which looks rather straightforward.  Before Friday's open, I hypothesized the upper boundary of the black trend channel, which ended up being right where Friday's rally stalled.  The chart is pretty self-explanatory, which (thankfully!) eliminates the need for 400 charts today.  I did draw up a couple more charts anyway, but only because I like you.

If the bearish 1-2 nest is correct, it appears that red wave 2 likely completed on Friday, at the black trend line.  And if this is indeed the case, then a strong decline is on deck.

One count that's not shown above is the potential that the decline to 1965 actually marks ALL OF wave (1)/A down, as opposed to a bearish nest of first and second waves (or the ABC).  I strongly considered that possibility on Friday, and berated myself this weekend for not discussing it, since that count would have anticipated Friday's rally.  I'm still awaiting the arrival of "thought-to-chart" software, which will allow me to simply "think-in" the trend lines and wave counts as quickly as I see them, without having to label everything by hand, thus allowing me to publish charts much more quickly.  The good news is:  I finally ordered that software last night.  At least, I think I did.  Depends on whether my "thought-to-anything-you-can-imagine" software was properly installed.  (I don't think it was, because I never did receive that pink chimpanzee with the face of Gilbert Gottfried, which I ordered well over a month ago.)

Anyway, next is an update to INDU's long-term chart, with a downside target noted:

A close-up of INDU reveals that, so far, all the rally has done is back-test the most recent breakdown:
(continued, next page)

SPX, NYA, US Dollar: Anticipation...

Wednesday's update was the most unabashedly bearish update I've published since late July, when I anticipated a correction to SPX 1899-1907 (exact target calculated August 1), which would be followed by new highs.

Speaking of, I want to reprint something from that update of August 1, because I think it may be relevant to the current market:

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. 

I reprinted this because, by all appearances, the market is currently in a third wave decline, and many traders tend to leave money on the table during third waves.  Third waves are usually strongly-trending moves, and thus are best approached as trend-following waves, as opposed to waves where one tries to get too fancy.  Let's take a look at the NYA 30-minute chart to see why this wave could run faster and further than many expect.  It's not entirely clear-cut, but it is possible that we're in a third wave at two degrees of trend.  I can't say for certain.  But, in the event that we are, there will be a lot more downside in store rather directly.

Incidentally, NYA captured Wednesday's downside target.

A look at SPX shows that the market has broken down from its red base channel.  Nothing bullish can happen with the market outside that channel.  Please note that this does not necessarily make the inverse of that statement true.  In other words, the market can reclaim that channel briefly, then decline again.  But until it reclaims that channel, there's no reason for bears to even begin to worry.

We have an interesting confluence of Elliott Wave and classic TA approaching, which makes it worth paying attention to, especially since nobody on the planet can yet guarantee that this decline isn't simply an ABC.

And here's a bigger-picture look at that black trend line:
(continued, next page)

NYA, SPX, INDU, COMPQ: "As Good as It Gets" for Bears

Last update noted that bears had an excellent shot at taking control of the market, and the subsequent sessions have gone well for bears.  The next couple sessions appears to be critical for bulls.  Let's get right to the charts, and we'll start with NYA, which again seems to be revealing the market more plainly than SPX or INDU.  Readers will recall that NYA suggested a bottom on September 15, and at the same time, revealed five waves down, which suggested a bounce toward 11,000, likely to be followed by new lows.

Presently, NYA has reached the first of two downside inflection points. 

If this is simply a corrective decline at a smaller wave degree, the market will likely bottom either directly, or at the blue 3/C on the chart -- this would complete the alternate count of 2 of (5).  If this is an intermediate bear wave, then NYA will instead ultimately go on to form a five wave decline (after blue 3/C, we'll have 4-up and 5-down), then it will bounce more significantly before declining again to new lows.  I'm favoring the idea that this is a bear wave.

A bigger picture look, via SPX:

COMPQ long-term:

COMPQ near-term (continued, next page):

SPX, NYA, INDU: Was Less than 1 SPX Point from the March Intermediate Target "Close Enough"?

First off, I apologize for the lack of an update on Friday.  My family has been the target of one crisis after another for about two years straight (with the targets running the gamut of generations, from my father to my kids), and it's something of a miracle that I've been able to manage anything even approaching a consistent series of updates throughout this time.  Maybe one day things will settle down.  Or, maybe one day things will get much, much worse, and I'll look back on these unfortunate events as "the good times."  Yikes.  (One reason why happiness can only be found in the present, though, never the future!)

Anyway, today's update is going to let the charts do most of the talking.

Let's start with my favorite master index.  Our special guest all this week, here from New York City, let's have a big Las Vegas welcome for the one, the only, the NYA!

(sound of crickets chirping)

Below is a slightly zoomed-in view, with some additional trend lines and support/resistance zones.  As I see it, NYA's pattern suggests that bears need to keep pushing, or risk at least another few weeks of hibernation, since a breakout here would keep the market pointed up for the foreseeable future. 

Let's take another look at some long-term charts.  On Friday, SPX came within 1 point of my intermediate target from March 5, 2014:

INDU effectively reached its target zone as well, though I would have liked to see a bit bigger overthrow of the red trend line (as noted on 8/22), here again INDU's high was well-within the margin of error.

(continued, next page)

SPX, INDU, NYA: FOMC Day

On Friday, I wrote that my "gut call" was for SPX to decline directly, but that an immediate decline would offer "above average odds for a buying op."  By Sunday night, everyone thought I was nuts:  ES futures gapped down big at the Globex open -- and if the cash market followed suit, it was toast.  But despite that sea of red in the futures session, I nevertheless published the cash charts I had drawn over the weekend, and reiterated my stance that I felt the best fit for the pattern was for a rally to (at least) SPX 1997. 

Needless to say, by Tuesday, my gut call from Friday didn't look so crazy anymore.  Frankly, I was modestly surprised that I was able to triangulate any pattern at all from within the last month's chop zone, so you'll have to forgive me for that little bit of horn-tooting.

The question now, of course, is whether this rally presents the selling op I believed it would when I wrote Monday's update.  The market is a dynamic mechanism, of course, so it's important that we assimilate new information as it becomes available.  The one key piece of new information is that the Dow Jones Industrial Average Ordinary Mediocre Average (INDU-OMA) exceeded my rally target and made new all-time highs.

I studied the pattern in INDU last night, and after a while, I finally came to the firm conclusion that I should stop and walk away before I went insane.  INDU's chart looks like it was drawn by M.C. Escher.  Almost every pattern I could find not only violated rules and guidelines of Elliott Wave, but also violated the fundamental laws of physics.  INDU's chart is an abomination, and I highly recommend we start a movement to burn all the INDU charts before this thing spreads to other markets.

I'm kidding of course.  I found a few patterns that made sense, but they're so complicated to chart (and make understandable for public consumption) that by the time I labeled everything, it wouldn't matter, because the sun would have burned out by then, and no one would care about equities anymore.

It's interesting how often the market works its way into complex types of patterns heading into FOMC announcements, which makes sense.  After all, the Fed is one of the main drivers of asset prices in what used to be known as our "free market" -- back in the day when bizarre and archaic concepts such as "productivity" and "supply and demand" impacted asset prices.  The term "free market" has taken on a different meaning in recent years, and the Fed's motto since 2009 has been: "We put the FREE in Free Market."

Anyway, it's time to look at the charts, and we'll start with SPX.  I am still leaning toward this being a complex flat, with some additional details in the annotations.

COMPQ failed to act as a canary for anything other than COMPQ, and with prices at current levels, doesn't do much to aid in additional clarity.

However, NYA again proved to be exceedingly helpful:

(Note typo:  "botom" should read "bottom."  A "botom" is not something you'd find in the market, but was instead a medieval weapon that was used to punish insolent serfs.  Or it should have been, anyway.)

 
Big picture, not much has changed during this extended chop zone:

In conclusion, a bit more upside wouldn't be out of the question here, but I do continue to marginally prefer the idea that upside is limited at current levels, and that Friday's low will be broken reasonably soon.  However, if bulls can sustain a breakout over the all-time high in SPX, then we'll have to give more weight to the idea that the chop zone was simply a consolidation period.

Do keep in mind that the market sometimes likes to head-fake near FOMC announcements, so stay very alert to reversals today.  Trade safe.