SPX and INDU: Bulls Hold Important Support

In Wednesday's update, I wrote:

We're now into territory where the wave counts become open to a great deal of interpretation, and with nothing in the way of a basing pattern yet, it's difficult to map out the market's exact next move.  The preferred count has kept us on the right side of the trade for several weeks, and netted us roughly 50 points in SPX profits for the decline (to date) -- and sometimes it's tough to ask for much more than that...

Thus, when the wave counts get into territory like this, sometimes it's best to pay careful attention to the trend lines and support/resistance, and not do too much front-running in either direction. 

That session did some grinding in both directions, but by the close on Wednesday, SPX had reached its major uptrend line from the October lows, which I noted in our forums.  On Thursday, it reacted to that line with a solid bounce:

We're still in territory where the wave counts are a bit unclear.  The near-term chart below discusses some options:

INDU seems to be showing a little more strength than SPX, relative to its resistance zones, but did close in the neighborhood of multiple near-term resistance lines, so bulls face a test over the next couple sessions:

In conclusion, downside targets were captured and bulls finally showed that they haven't completely left the building yet.  Most markets are now back into the same "noise zone" territory they've been in since December.  My preferred targets of the past few weeks have all been captured, and my system isn't giving me any new actionable signals at this juncture, so for me, this is a "wait and see" moment for the market.  Trade safe.

SPX, TRAN, INDU: Downside Targets Captured -- What Next?

Last update expected lower prices (likely after a fourth wave bounce), and the downside target zone was easily captured and exceeded during Tuesday's furious decline.

We're now into territory where the wave counts become open to a great deal of interpretation, and with nothing in the way of a basing pattern yet, it's difficult to map out the market's exact next move.  The preferred count has kept us on the right side of the trade for several weeks, and netted us roughly 50 points in SPX profits for the decline (to date) -- and sometimes it's tough to ask for much more than that.  The SPX chart below thus shows a few different options.  By all rights, the bear counts still look more probable than the bull counts.

Bigger picture, the expanded flat B-wave count that we followed throughout January is still alive and well, and for reference, I've annotated it on the chart below.  I stopped discussing this count primarily for ease of communication, because B-waves that make new highs (R.N. Elliott referred to these as "irregular tops") can get quite confusing.  Thus I made the command decision to quit talking about it, and instead focused on the other reasons I suspected we were topping.

 
For INDU, instead of updating and reprinting Monday's chart, I drew up a new one, to get a slightly different and fresh look at things:

In TRAN, we now seem to have confirmation that its rally was a corrective wave.  There are two obvious ways this can fit into the picture, both of which have been previously discussed in this index:

In conclusion, there's nothing in the pattern yet to indicate a significant bottom -- especially since we closed on the lows -- but there is potential for wave (3) to complete at any time.  At the same time, third wave declines can run farther than expected, as evidenced yesterday.  Thus, when the wave counts get into territory like this, sometimes it's best to pay careful attention to the trend lines and support/resistance, and not do too much front-running in either direction.   When we begin to see some small impulsive rallies, that will begin to more strongly suggest basing patterns and potential upside bounce targets.  Trade safe.

SPX, NYA, INDU, TRAN: 2070 Target Captured as Bears Make Their Presence Felt

Friday's decline caught a lot of traders wrong-footed, and the "bearish potential energy" I spoke about last update became reality during the session.

I do hope the updates of the past few weeks have been helpful to readers.  Back on February 27, when SPX was at 2110, I wrote the following paragraph -- and this is about as excitable as I ever get.  Long-time readers know that I'm a pretty laid-back guy, and writing a paragraph like the one below is (for me) the rough equivalent of Jim Cramer repeatedly slamming his fist into one of his sound effect buttons while screaming into the camera:

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.

Interestingly enough, SPX closed Friday's session just below 2072, so bears who allowed themselves a few small losses on the way up from 2072 were likely able to recoup all of those losses (with interest) in one fell swoop on Friday.  Especially if they were able to protect profits along the ride from February 27.  So 2058 +/- has now not only come into view, but wasn't too far from Friday's low.

So, with almost 40 points behind us since February 27, shorts can finally breathe a little easier, and have either already captured profits (since Friday's 2070 target was hit), or should look for ways to protect profits. The second target is officially 2048-60, with 2058 being the perfect world number.

To the upside, bears will want to be cautious if SPX can sustain trade north of 2087, though 2095 is the current (most conservative) key bullish overlap.

There are still bull patterns possible, such as the black ending diagonal (bull: i/ii/iii) shown below... but let's face it, that would be too easy for bulls.  There were a lot of traders still looking for higher prices when we were within the SPX 2090-2120 zone, so there is most likely significant overhead resistance in that zone.  As I wrote in our forum last Wednesday:

The wave structure has gone a bit into the realm of unusual, but unless we want to call today's drop an extended fifth of wave C,  bulls are running into the difficulty of "too many waves down." Right now, this looks more like a bear nest.

This pattern continues to maintain decent symmetry, and what we're seeing is potential layered overhead resistance being created as each sudden new drop ratchets the market below the prior support zone. Theoretically, bulls are getting trapped by this pattern.

A fourth wave is still possible and not off the table, but given only the raw appearance of the price action, this doesn't look like a "normal" fourth wave does. Sure, technically, it could still be a fourth. But it looks more like a top.

Resistance, of course, comes from all the (currently) trapped longs who bought each of those dips during that complex wave at the top -- many of whom will probably now be more than happy to sell at break-even if SPX revisits that zone any time soon.  Therefore, the pattern below suggests lower prices are probably needed before bulls have any real chance at a full bailout to new highs.

(NOTE:  Typo!  "1970" should be "2070"!)

A lot of traders were looking for a fourth wave here, to be followed by a fifth wave to new highs.  Now, I can't say new highs are off the table (especially for indices like COMPQ), because they're not -- in fact, I suspect we'll eventually see new highs one way or another somewhere down the line -- but I can say that this most recent decline is most likely (almost certainly) NOT a fourth wave:

The big picture count remains somewhat ambiguous, but my present instinct is that odds are fairly decent that we'll retest the February lows.  Stay aware of the key bullish overlaps, listed earlier, for warnings that new highs may be coming sooner, though.  Be aware that those overlaps will change as each wave completes, but should still mark resistance areas.

INDU's chart below:

Finally, nothing new to add regarding TRAN, except to note that the rally here has continued to look like an ABC for several weeks -- and looks even moreso now.

In conclusion, Friday's first downside target of 2070 was already captured, for an "easy" 40 points of profit.  To reiterate from earlier in the update:  The second downside target looks reasonably likely, and is "officially" 2048-60, with 2058 being the perfect world number.  To the upside, bears will want to be cautious if SPX can sustain trade north of 2087, though 2095 is the current (most conservative) key bullish overlap.  Trade safe.

SPX, INDU, NYA: NYA Hovering Over Its First Key Overlap

Last update noted that the near-term pattern seemed to favor the bears, and the market later saw a fairly significant decline.  Bulls are still quite certain that this is a corrective wave, and perhaps it is.  The issue they run into, at least in SPX, is that there appear to be "too many waves" down (meaning the pattern looks like it is not yet complete to the downside).  Bulls thus need to sustain trade north of 2110 SPX to begin neutralizing some of the bearish potential energy in this chart.

INDU offers a reasonably clean pattern, with some key levels to watch:

Unlike SPX, which appears that it perhaps has "too many waves" down, INDU currently has three waves down, thus the next breakdown/breakout may prove to be significant:

Finally, NYA back-tested an interesting confluence of resistance yesterday, and was rejected.  Any more downside here would overlap the first key bearish level, and suggest the extended fifth count I've been showing (in blue, preferred count) on SPX is likely correct.

In conclusion, the wave pattern isn't crystal clear, but continues to look more bearish than bullish for the moment.  Bulls will need to begin reclaiming some key levels to negate the bearish potential energy that's present in the charts.  Trade safe.

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.