Market Reaches Bull/Bear Inflection Point; Plus Another Look at the Long-term

Last update expected a stop-grabbing rally to run north of 2114, but anticipated that it would reverse to take out the 2103 low.  This is exactly what happened on Monday and Tuesday, so hopefully readers were prepared and reacted accordingly.

The market has now reached its first potentially-significant inflection point.  If the decline to 2098 was a corrective ABC, then it's probably complete.  The bearish count is that the decline from 2117 to 2098 was wave 1 of C/(3), which would mean the market would likely come under significant selling pressure south of 2098 (not necessarily immediately -- see INDU 1-minute comments), with a first target near 2080 +/-.

Here's a slightly wider view of SPX.  Note the black trend channel was both broken and back-tested during yesterday's session.  The rally is (so far) only an ABC up into that back-test, which may favor the bears.

INDU has broken and back-tested two trend lines recently:  (continued, next page)

SPX and COMPQ: SPX Develops Symmetry; COMPQ Hits Long-Term Trend Resistance

Last update expected that the lows weren't in, and the market obliged by breaking 2103.76 during the session.  It still appears reasonable to expect another new low, because we have what currently appears to be an incomplete waveform.  Thus this is either the b-wave of an expanded flat (shown in blue), or a bearish nested wave, likely wave 1 of C (or (3)).  Targets are unchanged from last update, the main question is whether we have a small stop-grabbing rally first.

(If you're a member of our forum, there's only one new chart in today's update, beyond the charts already posted/discussed on the weekend thread.)

Bulls should stay cautious of the symmetry here, especially in the event of a sustained breakdown at blue support.  This type of symmetry is fairly common for topping (and bottoming) patterns.  This potential head and shoulders suggests a 15-point decline if it sustains a breakdown:

The issues discussed in the update of Feb. 27 are unchanged -- currently, unless we're building an ending diagonal c-wave, there are "too many waves down" and the current wave is still too short relative to wave A/(1), which suggests the lows are still not in.

COMPQ has reached an interesting long-term trend line (log scale):

And finally, I'd like to include a brief rant I posted in our forum regarding the Fed (and the rest of the world's central banks) and the challenges they face:

The problem for the world's central banks, as I see it, is a matter of the innate limitations of what can actually be predicted -- much less controlled. Global economics is an incredibly complex system; I would liken it to climate or weather, and there are simply too many variables to dumb it all down into any kind of manageable equation.

Let's run with the weather analogy: We can use satellites to track a storm headed toward my home island; we can use math to calculate its speed and distance, and roughly when it will hit; we can project its current track and guesstimate where it will hit. Those are the variables we understand and can account for. But those are not the only variables.

As a result, they still can't tell us if the storm will be a hurricane, a tropical storm, a tropical depression, etc. by the time it hits us.

In fact, they can't even tell us for sure if it will hit us (until the last minute). There are variables involved which they do not understand clearly, and which they cannot account for.
Of course, forget about trying to actually control the storm.

Economics is a similarly complex system. It is organic, so the variables we try to account for are in constant flux. Other nations, banks, and entities are often changing the playing field. People do the unexpected. These constant, unexpected changes to the system are occurring in little ways, but on a virtually infinite scale. There is just no way to account for all of it.

With the Fed, you're talking about a few guys in a room trying to predict how every other entity on the planet earth will be impacted by their latest policies. Then, how those entities will react to that impact, and how the actions of those entities will in turn impact them. No one can predict this, I don't care how smart they are.

Because the system can't be truly predicted, in essence, Fed policy can only be designed based on two things:
1. Past results
2. Speculation

And, on these lines, I'd simply mention that this "very intelligent" group of people is the same group who not only failed to foresee the real estate bubble, but then failed to recognize it even after it started forming. And, of course, the real estate bubble came about while they were trying to fix the fallout they caused with the dot.com bubble.

So next time we're tempted to pat them on the back for what a great job they've done since then, we should remember that they are only cleaning up their own mistakes.

Maybe I'm just cynical, but I can't imagine they're not making another one. They are currently trying to recover from the fallout caused by two past periods of massive excess -- by creating even greater excesses. Each time the fallout has been worse than the last. Each time they have been forced to apply greater firepower to recover. The bigger the bubble, the bigger the mess when it finally pops.
I can't imagine this doesn't ultimately end the same way. 

In conclusion, near-term, further downside appears reasonably likely.  At the next higher wave degree, the question becomes whether this is a fourth wave which will culminate in new highs, or a larger top.  Watch for a three-wave decline, followed by an impulsive rally to suggest the fourth wave.  If the decline instead goes on to form a fourth and fifth wave, then bears may have the start of something larger.  Trade safe.

SPX Update: Bears Finally Get an Opportunity

Two quick charts today, which pretty much say it all.

Before we get into these, I had noted on Monday that a break over 2110 SPX would likely lead to 2115-17+/-, and that zone would have potential to mark at least a minor top.  The market ran to 2119, before reversing.

First off, the SPX near-term chart suggests that we haven't bottomed yet.  I published this chart in our forums shortly after the cash close, and the overnight action in the E-mini S&P futures (ES) seems to be confirming this count so far:

The preferred near-term count would be invalidated north of 2120.  Stepping back a bit, here's how it looks on the 30-minute chart.  The first bearish trigger target was captured yesterday -- if the count shown above is correct, then the second target should be captured as well:

In conclusion, this appears to be the best opportunity bears have had since 2072 SPX.  If this is a bull wave, then it's likely that this will prove to simply be a fourth wave correction.  If the bears have control, then it will turn into something more significant, and 2058 comes into view as a potential target.  Either way, near-term, prices appear likely to be headed lower, so if you're a bear who's been waiting patiently for another decent opportunity, then this is the best one that the market has presented in a while.  Trade safe.

SPX, INDU, BKX: Giving the Bulls Some Airtime

This rally has been one of the least-clear waves we've seen in a while, and the overlapping price action has created repeated difficult-to-read congestion zones on the near-term charts.  Yet it has continued to recover from each decline, so bulls are, of course, very happy and complacent at this point.  So, today, we're going to give bulls a little more airtime in the wave counts, thereby guaranteeing an immediate top in the market (sorry, bulls!).

Let's start off with the elephant in the room for bears -- the long-term INDU chart:

Next, we'll look at a bear option that no one seems to be considering, along with its bullish counterpart:

Below, broad strokes on the bull/bear cases in BKX.  BKX was one of the hardest-hit market during the last decline, and which often leads the broader market:

The near-term SPX chart contains some bull and bear options, but this wave has been so tough to micro-count in real-time that I'm almost hesitant to even put wave labels on the chart.  One of the most challenging moments in Elliott Wave analysis is when you arrive into uncharted price territory, and have doubts as to what the next larger wave count is -- so you're not sure whether to expect five waves or three, etc..

In conclusion, the rally hasn't been as strong or relentless as one would hope for third wave, yet it has continued to recover from each overlapping decline so far.  We're certainly into price/pattern territory where one would expect at least something of a correction to develop, but as I've noted, the micro-counts remain less-than-clear.  If bears can break yesterday's low, then we have some downside target zones to watch for the near-term.  Trade safe. 

SPX, BKX, TRAN, NDX: BKX May Hold Clues to the Market's Future

I'm going to let the charts do virtually all the talking in this update.

Let's start with SPX:

BKX may hold big clues heading forward:

TRAN is still inconclusive in its current position, but may also offer some important clues in the near future:

Finally, NDX has now rallied about 95% of the way toward the previously-noted breakout target.  Bears still have options here, in the form of a C-wave and the black path, but the first step would be some impulsive declines to begin suggesting a trend change.

In conclusion, I feel that watching BKX and TRAN heading forward will be helpful to sort out the bull counts from the bear counts.  Trade safe.

SPX, INDU, TRAN, MID: Fractured Markets

I find it interesting that bulls seem to have claimed victory on SPX's new all-time high, given that SPX isn't exactly the only market that matters.  A number of major indices are lagging considerably, not the least of which is TRAN.  TRAN still hasn't reclaimed its last swing high, much less its 2014 highs:

The Dow Jones Industrial Average hasn't broken out yet, either, which is interesting inasmuch as INDU usually leads SPX, not vice-versa.

SPX may have completed five waves of rally (which would mean a larger correction pending), though could still support another wave up.  As noted previously, the "easy" part of this rally was 1980 to 2064 -- the patterns have been a bit muddled since then:

Finally, the S&P midcaps (MID) present some interesting options:

(Note typo about the "blue" trend line, which should read "red" trend line.  I changed the colors after writing the annotations!)

In conclusion, bulls have claimed victory and seem to have settled back into complacency.  And who knows, maybe they're right to do so... but, given the fact that some important indices are still well-below their most recent major highs, it doesn't seem to me that the markets have signaled an all-clear just yet.  Trade safe.

SPX Update

Since last update, SPX broke the all-time-high, which serves to eliminate the wave (2) count from consideration.  It does still leave open the option of a complex B-wave into the new high.  2096-98 was noted as the textbook target for that pattern, and SPX closed Friday at 2096.99.

In the event the current rally is wave C of B, then there are roughly enough waves in place for a complete rally:

In conclusion, SPX went out on the highs, so there's nothing in the way of an impulsive decline yet to suggest a turn -- thus there is nothing to add any confidence to the possibility that wave C of B is complete.  Bears should be aware that, in the event SPX can sustain this breakout, then this could turn into a trend-following wave; however, if the market turns from this zone, then bears have a decent shot at getting something started from here. 

In other words, the market is in an important inflection zone, and bulls and bears alike will have to respect how SPX responds.   The very first step for bears would be an impulsive decline from Friday's high, to help add confidence to the expanded flat scenario.  Ideally, we'll have a bit more significant information by next update.  Trade safe.