Amazon

Wednesday, January 14, 2015

INDU, SPX: A Potential Complexity


Today's update will be short and sweet.  There's been no material change to the intermediate outlook, but the market has potentially created a new wrinkle for the near-term picture.

Below is the INDU chart, which shows the possibility that the market is creating a very complex expanded flat.  Because of INDU's new high yesterday, we have to respect this potential:

(Typo: black alt. count should show "alt. C")



The SPX chart contains some additional detail.  Monday's targets were reached, both to the upside and to the downside.


Beyond that, there's nothing much to add to the picture at the present moment.  If there's anything to add on Thursday, I may post a brief update tomorrow.  Trade safe.

Monday, January 12, 2015

SPX and BKX: Has the Second Leg of the Major Correction Begun?


In Friday's update, we discussed that SPX and BKX had reached their upside inflection points, and that both indices were potentially completing 3-wave corrective ABC rallies.  In Friday's session, the market began to decline shortly after the opening bell, thereby validating that near-term interpretation.

As I've outlined all month, the preferred count continues to believe that this is most likely the prelude to a larger decline:

 
Meanwhile the pattern suggests a near-term rally is an option.  In the event such a rally materializes, it would present an opportunity for reasonably low-risk shorts (Note: this is not trading advice!  Consult your broker, your banker, your doctor, your lawyer, and your mother-in-law before making any investment decisions.  Side effects may include frustration, nail-biting, insomnia, and the sudden urge to check your cell phone repeatedly.).

The bull count isn't dead yet, but a rally to 2057 +/- would present risk of approximately 8 points vs. potential reward of 100+ points (big picture, see first chart).  The more immediately bearish count is that (2)/B completed already at 2053.

Side Note:  It's worth mentioning that this pattern played out to perfection overnight in the E-mini S&P futures -- so futures may have already "done the work" for the cash market.  In the event that the market declines directly and sustains trade beneath 2038, then we should probably assume that wave (3)/C is already underway to the downside targets noted on the chart below.


Again, the bull count isn't dead yet, but one additional concern bears face is the potential of a complex double-retrace rally, shown in broad strokes via the Philadelphia Bank Index (BKX). 


In conclusion, intermediate-term, unless and until SPX reclaims 2065, we probably have to favor the view that a decline has begun to 1950-60 -- and beyond.  Trade safe.

Friday, January 9, 2015

SPX, BKX: Bulls Keep Hope Alive


Part of the value in Elliott Wave comes from properly identifying the market's inflection points.  It's not always possible to predict what will follow an inflection point, but those points do alert us to the possibility of reversals and trend changes.  Last update expected at least a near-term rally, and warned:

In other words, until blue 4 and 5 have been realized (thereby completing an even larger five-wave decline and thus suggesting a trend change at an even higher degree of trend), bears should be cautious at current levels.  If SPX is going to bottom on an intermediate basis, it's likely that this is the price zone from which that would occur.  So, put another way: If you're a die-hard bull, then this is finally where you place your bets.

The Philadelphia Bank Index (BKX) has already captured my first intermediate target, and again, that suggests this probably isn't the best time for bears to get greedy.  As the old saying goes, "Bulls make money, bears make money, pigs get slaughtered."

It remains to be seen if this recent inflection point will represent the beginning of a higher-degree trending wave, or if this is merely a counter-trend rally.  Thus far, there are not enough smaller waves present in the pattern to call it a major trend (it is not yet a five-wave impulsive rally, but is only three waves thus far) -- but, as I've stated previously, I'm not closed to the bull case, so I'll try to be as objective as possible in identifying if the rally becomes impulsive.  An impulsive rally would suggest that there will be at least one additional, sizeable wave higher.

The SPX chart below shows the current three-wave structure of the rally:


The Philadelphia Bank Index has already reached its minimum retrace target:


The 5-minute chart suggests the first decline was impulsive, so we should probably expect at least one more wave down (please note that I forgot to attach this chart to the original morning publication of this update):



In conclusion, bulls did what they needed to at Wednesday's inflection point, and generated a solid reversal.  They are now in the same position bears were in just a few sessions ago, and it's reasonably clear what they'll need to accomplish heading forward.  Do keep in mind this also means the current zone is one area where bears could retake control.  Call me stubborn, but until the bulls prove their case via the near-term waves, I'm still slightly inclined to favor the bears heading forward.  Once again, though, I'm not unequivocally married to that view -- it's just that it seems like it's a slightly-better fit to the the big picture charts.  Trade safe.

Wednesday, January 7, 2015

SPX and BKX: Downside Targets Captured; Bulls and Bears Now in Balance


Monday's update expected the decline would continue, and the S&P 500 (SPX) has since captured both of my downside target zones (2015-20 and 1984-94).  With both downside targets captured, a rally/reversal becomes possible.  This appears to be an absolutely critical intermediate inflection point for both bulls and bears.  Let's discuss why.

The basic premise of Elliott Wave Theory is that the market advances in five-wave moves, which occur in the direction of the next larger degree of trend.  Therefore, one five-wave rally or decline typically begets another of similar or larger size.  From there, the market builds fractals -- in other words, once we see five larger waves (each wave composed of five smaller waves), then we know to again expect another five-wave move in the same direction, and so on.  Each completed five wave move is typically interspersed by a three-wave corrective move in the opposite direction.

Elliott Wave has kept us on the right side of this market for most of its major moves of the past few years, and it has kept us on the right side of this decline since December 31 -- in other words, it's kept us looking for lower prices throughout roughly 90 points of decline; certainly not a bad week of trading.


By Friday, SPX had completed its first larger impulse wave (shown as blue 1 on the chart below).  That allowed me to generate the two downside targets discussed earlier, both of which have since been captured. 

Well, here's where things get interesting again.  The two-minute SPX chart below shows that we have reached the most key intermediate inflection point of 2015 (so far, anyway -- sorry, couldn't help myself).  Based on the long-term market charts, I'm inclined to favor the idea that we've begun an intermediate decline.  However, I make it a rule to consider both sides of the trade, because there is always room for error when attempting to interpret the market's patterns and wave structures.  In this case, considering the other side of the trade means that I must objectively acknowledge that it's entirely possible that these two five-wave declines represent a simple ABC correction (shown as the black bull count below). 

In other words, until blue 4 and 5 have been realized (thereby completing an even larger five-wave decline and thus suggesting a trend change at an even higher degree of trend), bears should be cautious at current levels.  If SPX is going to bottom on an intermediate basis, it's likely that this is the price zone from which that would occur.  So, put another way: If you're a die-hard bull, then this is finally where you place your bets.


The Philadelphia Bank Index (BKX) has already captured my first intermediate target, and again, that suggests this probably isn't the best time for bears to get greedy.  As the old saying goes, "Bulls make money, bears make money, pigs get slaughtered."



One of the more bearish points is the strength and speed of this decline in BKX -- unlike anything we've seen from this market in a long time, and hinting that maybe we're seeing a change of character in the market:

 

In conclusion, bears have had a great week, so there should be no rush to give that profit back at a point where the market is objectively in balance, and could thus return to the bulls' control.  I'm inclined to favor the bears for the intermediate term, but I'm not entirely closed to the bull case yet, because the charts are not entirely closed to the bull case yet.  In very short order, we should have a clear and definitive answer as to who controls the intermediate picture.  Trade safe.



Monday, January 5, 2015

SPX, COMPQ, BKX: Nasdaq Warns of Waterfall Potential


Back on November 17, I put forth my preferred thesis that the market was unraveling a high degree fifth wave.  My original target was 2065-75 for SPX, but I later adjusted that to 2090-2100.  On December 19, I reaffirmed my thesis that virtually everyone had it wrong, and wrote:

As outlined, in my perfect world, I'd like to see those new highs, ideally in a fashion convincing enough to get everyone even more ragingly bullish... right before the market begins an intermediate decline.  In the meantime, I'll track the structure on a micro level to try and identify that point as it happens.

On December 31, I believe I identified the inflection point as well as I could, and wrote:

"The Philadelphia Bank Index (BKX)... has all the ingredients in place for a complete rally."

and

"The 2-minute SPX chart shows an impulsive decline from the recent 2093 high.  The chart discusses the options further" (Chart said: "We probably can't go too far wrong expecting another wave down.")

So, here we are a few sessions later, and suddenly my thesis of the past two months doesn't look so crazy anymore.  For perspective, here's the daily SPX chart:

(Incidentally, if you're wondering what all these letters and numbers on the chart mean, and how they're relevant to what happens next, you might find value in my primer on the subject: Understanding Elliott Wave Theory)


The two-minute SPX chart contains more detail:


Let's take another look at BKX, which is really the index that tipped me off to the turn as it occurred.  Like a few other indices, we cannot truly call the decline in BKX impulsive just yet, so the bull options stay on the table for the time being:

(continued, next page)

Friday, January 2, 2015

SPX and BKX: Market Reaches First Minor Inflection Point, Plus 13 Market Surprises for 2015

Last update expected a small bounce, followed by another wave down to SPX 2069-70.  That projection played out, and the first target zone was exceeded.  The question now is whether a larger turn has already begun, or if this is the previously anticipated small-degree fourth wave correction.

Thus far, the decline is only three waves down (three wave structures are corrective).  If it remains that way, then we will assume this was wave (4).  If the decline goes on to develop an even-smaller fourth and fifth wave (see chart below), then it will begin to have the appearance of a five-wave impulsive decline.  Since impulse waves generally develop in the direction of the next-larger trend, if red (4) and (5) develop, we would then assume that a larger turn was indeed underway.


The Philadelphia Bank Index (BKX) has also made downward progress, however the wave is, thus far, in a similar position to SPX.


The primary difference between SPX and BKX is that the last rally in BKX reconciles rather well as a complete structure, which would imply that a bigger turn has already begun.


In conclusion, on one hand, new highs across the board prior to a more significant turn would not be unusual.  The last few tops have followed that pattern, with the first drop being a bear trap, and the recovery then being a bull trap.  But by the same token, as I mentioned a couple weeks ago, if there's to be a "surprise" intermediate decline, it might not follow the usual pattern -- and it bothers me that sentiment remains outrageously bullish, and most everyone seems convinced this is just a minor correction.

From a technical standpoint, due to its cleanly-reconciling rally, BKX, at least, seems to be hinting that there's solid potential that a turn has already begun.  I believe we'll have a more definitive answer soon enough.  The market has reached its first minor inflection zone, and the next few sessions will thus be important to revealing more clearly where SPX stands in the intermediate picture.

Finally, on the lighter side, now that 2015 has officially inflicted itself upon us and everyone is doing "2015 market lists," here's a tongue-in-cheek look at:

13 Market-Related Surprises Coming for 2015

1.  In January, at the culmination of a long undercover investigation, "Janet Yellen" will be exposed as actually being three elderly Canadian men, dressed in what the FBI will call "a very clever disguise."*  She/they will be forced to step down as Fed Chairpeople.  The U.S. markets will tumble.

2.  In an emergency move in February, Ben Bernanke will be reinstated as Fed Chairman.  He will immediately require that QE be continued "until the United States lands a manned spaceship on the sun."  When asked about this unusual demand, Bernanke will state:  "I'm not an unreasonable man.  I fully expect that NASA will perform the landing mission at night."  The U.S. markets will instantly recover to new highs.

3.  In related news, during an important speech in March, Mario Draghi will accidentally swallow his own head on international television.

4.  The ECB will collapse.  In April, Japan will purchase the ECB for pennies on the Euro.  Their new currency will officially be named the Yenro -- but smart-aleck analysts will insist on calling it "the Euren."**

5.  Japan's Nikkei will initially soar, then collapse dramatically.  In June, Ben Bernanke will purchase Japan.  He will rename it "Bernankeland." 

6.  Bernankeland will be annexed as prime coastal real estate, and late night American infomercials will advertise how to "Get Rich Quick Flipping Homes in Bernankeland."

7.  By August, a new, Bernankeland-driven real estate bubble will have emerged in the U.S..  This latest bubble will finally stimulate the U.S. economy, and create the long-awaited economic "recovery."

8.  In September, the remainder of the ECB (now owned by the U.S. via former-Japan) will be sold for parts. 

9.  Germany will initially try to purchase the ECB shares of France, Austria, Belgium, The Netherlands, and most other countries -- but this move will be ultimately be blocked by the U.S. (with some help from Russia).  Having again saved the day, the U.S. will sell ECB shares back to their original constituent countries for a profit.

10.  By November, having finally achieved his lifelong ambition of True World Domination, Ben Bernanke will declare himself as Super-duper King of the Earth.  Billions (of people, not newly minted currency) will cheer in admiration.

11.  In December, King Bernanke will require that, henceforth, all citizens shall address him only as "Mr. Super-Duper Fed King Chairman, sir."  His first official decree will be that eight random Wednesdays in each year shall be designated as worldwide holidays.  On those holidays, under penalty of treason, TV broadcasts will be limited to showing ONLY reruns of old Bernanke speeches (however, commercial interruptions will be allowed, in the name of stimulating consumerism).

12.  Everyone will live happily ever after. 

13.  I mean, right?  No matter how we get there, that's how all this ends, right?  Everything that's going on now can ONLY end well.  Right?  RIGHT?!?!?


*Credit to Dave Barry for the concept of three men masquerading as one woman
**Credit to board member Benedict Arnold for "the Euren"

Wednesday, December 31, 2014

SPX, BKX, INDU, GE: GE a Good Short Op as Potential Turn Draws Near for Major Markets


In Monday's update, I noted the following on the S&P500 (SPX) chart:  "Downside risk may be exceeding upside potential at the present moment."  During that session, SPX made a new high by less than one point, and then proceeded to generate a 14-point reversal.

Frankly, I have spent a ludicrous amount of time staring at charts since yesterday's close, so I'm going to keep the body of the article fairly light and let the charts do most of the talking.

First off, let's take a look at the Philadelphia Bank Index (BKX), which has all the ingredients in place for a complete rally:


For perspective, here's another look at the long-term SPX chart.  For the time being, I remain in favor of the thesis that we are completing a higher degree fifth wave, to be followed by a significant correction.  I'm not closed to the more bullish options, however, I feel we can adjust to a more bullish footing in real-time as and if needed.


The 2-minute SPX chart shows an impulsive decline from the recent 2093 high.  The chart discusses the options further:

(continued, next page)