SPX and INDU: If Bears are Gonna Roar, then Now's the Time

If you're not a member of our private forum, then you're missing all the fun!  Just after the open on Wednesday, I alerted everyone to the fact that the rally appeared to be an extended fifth wave, and that it was likely nearing completion.  Then, shortly after the close on Wednesday, I published the following chart and suggested bears had the ball for the near-term:

I then published this updated version after the close yesterday -- and, based on where futures are now trading (they were slightly green when I first posted this chart), my preferred near-term target from Wednesday appears to be a done deal:

No change to the intermediate picture, and the next few sessions appear to be for all the marbles.  This is the best shot bears have had, and if they're going to make their counts happen, then now's the time.  Even in the event of the bull count, bears who followed the preferred count outlined on Wednesday should be able to exit for a small profit, and no worse than break-even:

Since we can never afford tunnel-vision in trading, let's take another detailed look at the bull option:

INDU shows some interesting patterns: (continued, next page)

SPX and INDU: The Moment of Truth Arrives

Still no material change, but this is where things get really interesting.  SPX and INDU are within spitting distance of prior highs, and those prior highs have already demonstrated that they represent resistance -- yet, of course, this is where everyone wants to feel bullish, since we've been rallying for a while.  I would caution folks against becoming too bullish unless and until the market can sustain a breakout over this resistance zone.

INDU and SPX could both support one more marginal new high for this wave, without violating the bear counts:

SPX:

Although I'm unwilling to favor the bull counts until resistance is claimed, I do always consider both sides of the trade, and try to look a few steps down the road.  On the bull side of the trade, each decline this month has been bought (so far), so let's end with a more detailed look at the bull count, in the event the market CAN break out here.  Do note that there are potentially enough waves for a complete triangle:

In conclusion, the moment of truth is here.  If this is a bearish corrective wave, then bears can allow one more minor new high, but do need to make a stand directly.  If it's a bull wave, then bulls have to show us that by powering through the prior resistance levels that they've struggled with on two occasions.  Either way, we should have some conclusive answers shortly.  Trade safe.

SPX and INDU: No Material Change

Still no real change to the past few weeks of updates, except to note that INDU has finally reached the red circle that was first noted on April 1:

SPX has reached the general C-wave target zone, but may or may not still have fourth and fifth waves left to unwind.  This is definitely not the clearest wave to try and micro-count at this moment, so I can't place too much faith in the very-short-term counts right now:

No change yet to the intermediate picture:

In conclusion, the market has essentially been trading in a noise zone for the entire year, and reading too much into micro patterns inside a noise zone can be an exercise in futility -- so we probably have to default to the larger view as our guideline and paint with broader strokes for the moment.

Intermediate-term, there's been no real change to the picture yet -- the declines have appeared impulsive, while the rallies have appeared corrective (to this point, at least).  Thus, there won't be any real changes until bulls claim 2120, or until the market creates a markedly new pattern.  Trade safe.

SPX and INDU: Potential Whipsaw Looming

There's no material change from last update, and the last couple sessions had the overlapping feel of a fourth wave.  The near-term pattern has left itself a couple options.

I'm sorely tempted to favor the path shown in black on the chart below, but it's almost TOO complex a pattern for me to simply come out and say "here's what's gonna happen."  Frankly, the last overlapping wave is extremely difficult to count (difficult even for a fourth wave).  The blue path represents the more conservative course, but keep a very close eye on the potential for SPX to roughly follow the black path.

The black path could see a "pop and drop" open, but the "pop" part isn't required.  As of the moment of this writing, futures are up a few points, but that may or may not stick, of course.

 
The big picture options remain as previously noted:

INDU's simple trend line chart also remains unchanged, with sustained trade north of 18,008 still the next hurdle for bulls to reach the red circle:

In conclusion, there is one decent near-term option for a continuation of the confusing chop we've seen over the past couple sessions -- this is represented by the black path on the first SPX chart, and that pattern would see at least two whipsaws in the immediate future.  The more conventional option (blue path) would simply head up to the target area while unwinding a couple small fourth waves along the way.

Bigger picture, at present we still have to give an edge to the bears, because the near-term waves still fit better with the bear counts, and so far there have been no real surprises.  I've outlined the bear arguments in detail for the past couple weeks, but I will continue tracking the bull options, because the fact is, we've been in a bull market for six straight years.  That's the essence of the bull argument right there -- but six years of bull market does mean that bearish stances are ill-suited to complacency.  For now, though, we'll just keep the bull counts on the back burner until bulls start showing more than the expected levels of strength.  Trade safe.

SPX and INDU Updates

I'm going to let the charts do most of the talking today.  Let's start with noting that the ending diagonal previously-discussed as the bull option no longer appears viable.  Now, that doesn't mean there are no bull options, it just means that the bull pattern would most likely be a triangle, not a diagonal.  A triangle would also explain the reason that the rallies have been corrective -- and the corrective rallies are largely what has led me to favor the more bearish options.

Now, that said, the declines have appeared to be impulsive, which doesn't fit the nature of a triangle, as both rallies and declines should be corrective in a triangle.  Therefore, I'm still inclined to favor the more bearish options, but this isn't a screamingly-clear call here...

Near-term, SPX has followed the "or (2)" path, and that wave may or may not be complete:

One market that leads me to continue granting bears a slight edge is TRAN, which has made new lows for the year:

INDU followed the near-term "best guess" path I laid out at the end of last month:

Note INDU's back test of the broken uptrend line. 

In conclusion, so far, there has been nothing truly unexpected from the market -- in fact, the potential for a double-retrace was outlined all the way back on March 27.  Due to the overall shape of the pattern, odds have to continue to be given to the bears, but we certainly can't say we haven't seen bulls pull out stranger upsets, so nothing would really surprise me at this point in the 6-year bull market.  If bears are going to turn things back down, then -- allowing for the possibility of another thrust to new highs to complete wave C -- the current zone is where that might begin.  Trade safe.

SPX and INDU: The Simple View -- Why Bears Currently Appear Stronger than Bulls

There's been no material change to the outlook, though the market continues to bounce like a dropped ball along 2039 support (each bounce has been lower than the last, as it may be burning through buyers at that support level).  Since there's been no change, let's refer back to Wednesday, which ended with two paragraphs:

In conclusion, I continue to believe that the market is on the cusp of a significant decline, and that bounces should be sold.  Again, though, I would be remiss not to mention that the market has yet to confirm this thesis (largely confirmed below 2039 SPX).  On the bull side, the first step for bulls at this point is to sustain trade north of 2089, though this would still leave bears additional options.

The bearish potential energy in this chart is now significant, and in the event that SPX sustains trade south of 2039, it is likely to produce a strong decline that may not let shorts back in, and may not let anyone attempting long positions out (except at a loss).  Third wave declines can be fast and relentless.

Moving on to the charts, we'll start with the big picture for perspective:

Zooming in on the near-term, there are enough waves in place for a complete rally to 2072:

What we cannot foresee, however, is whether the apparent abc to 2072 marks the final end of that wave, or if the rally wave will become more complex:

Do note that in the event that SPX holds 2053 and then breaks out directly north of 2072, then we might consider the potential that the C-wave is extending, represented on the chart below by blue "or (2)?":

INDU's chart covers all the options at once.  Whichever short-term path we take, the market still seems to be pointed lower; essentially until proven otherwise: (continued, next page)

SPX and INDU: Bears Await Confirmation

As many of you know, Ben Bernanke recently started a new blog.  His first few blog posts were just pictures of Janet Yellen's head Photoshopped onto a donkey body, but now he's posting more serious topics.  At present, he's published parts I and II of a 789 part series titled, "Why the Fed Sucks without Me."

No, sorry!  That's another April Fool's joke.  He's published parts I and II of a series titled: "Why are interest rates so low?"  One of the most interesting paragraphs from part II is reprinted below.  This is written in the context of whether or not the U.S. faces "secular stagnation":

The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.) Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there.  Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending.  It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation.

Again, the above is in the context of "secular stagnation," and Bernanke goes on to say:

Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today.

Now, I'm certainly not a former Chairman of the Federal Reserve, but I believe it's quite debatable whether the U.S. economy "looks to be well on the way to full employment."  Unless, of course, we count the fact that people with doctorate degrees are currently achieving "full employment" in jobs with titles such as Park's Official Gum-wad Remover.

Anyway, I don't have time to go into that in more detail today, but I am working on a future piece that will address some of these issues in more detail, and which will encompass QE, the Fed, and the finer nuances of removing gum-wads from under park benches.

Let's get to the charts.  On 3/27, I noted on the INDU 30-minute chart that there was potential for a retrace all the way back to 18,000, and I stuck an "Alt.: (2)" label there.  It now appears that count played out, and the rally to 18,008 has the appearance of a three-wave corrective rally.

Here's another look at the daily chart for context:

And another look at INDU's simple trend line chart:

SPX's near-term chart (2 minute).  I published this yesterday morning in our forum, suggesting that wave (2) may have completed at 2089:

Finally, SPX's daily chart for context:

In conclusion, I continue to believe that the market is on the cusp of a significant decline, and that bounces should be sold.  Again, though, I would be remiss not to mention that the market has yet to confirm this thesis (largely confirmed below 2039 SPX).  On the bull side, the first step for bulls at this point is to sustain trade north of 2089, though this would still leave bears additional options.

The bearish potential energy in this chart is now significant, and in the event that SPX sustains trade south of 2039, it is likely to produce a strong decline that may not let shorts back in, and may not let anyone attempting long positions out (except at a loss).  Third wave declines can be fast and relentless.  Trade safe.