SPX, INDU, BKX: Fractured markets

In the last update, we talked about how the bulls had demonstrated the potential that the last few months of corrective rallies were part of a triangle and not something more ominous.  Yesterday, SPX briefly poked its head above 2120, but that was rejected immediately -- and many other markets failed to make similar moves.

For example, INDU has yet to do anything at all:

BKX has, so far, not even broken Wednesday's high:

This leads me to look for ways that the market may have some tricks up its sleeve, and below is one such option:

We can track the above potential by watching the near-term charts:

Finally, the long-term picture is essentially unchanged:

In conclusion, we have mixed messages being given across the board right now.  Perhaps all of that will align in the next few sessions, perhaps it won't.  At present, though, the fracturing across markets leaves it difficult to get too married to any one outcome just yet.  Trade safe.

SPX and INDU: Bull Case, Bear Case

The longer a market spends inside a chop zone (trading range), the more difficult it gets to interpret the near-term wave patterns, and the less reliable the reads of those patterns generally become.  Whipsaws become more and more common, because each near-term support or resistance level (inside a range) grows weaker the more times the market trades around it, which allows the market to start pushing those levels around.  It becomes harder to judge which waves are impulsive and which are corrective, because the more often a market trades through a range, the thinner support and resistance become -- so every wave seems to move with ease, and the usual signs of corrective waves grow harder to spot.

I'm noting this because this chop zone has reached a point where it's difficult to get a fix on the near-term waves, and you'll likely find that even trend lines and traditional support/resistance are going to get a little squirrely as long as the market remains within the range.

In the last update, I noted that a deep retrace of the prior decline seemed probable, and noted SPX 2105 +/- as a potential target -- and SPX rallied all the way back to 2109.  There were a lot of sellers waiting in the zone near the high, and yesterday's opening pop was rapidly reversed.  But it's "put up or shut up" time for the bears here, and in the event of a breakout, we'll have to give odds to the bullish triangle that I've been discussing for the past few weeks.

Since I mentioned it, we'll start there:

SPX intermediate counts:

Let's take a look at INDU's long-term chart for perspective: (continued, next page)

SPX, INDU (and Gold): Market Reaches Inflection Point

The nature of the human mind is such that it wants to extrapolate the recent past into the immediate future.  This is why traders tend to get bullish near tops, and bearish near bottoms.  This is why, near the most recent top, the majority of traders were bullish.  But the nature of the market is such that, in most instances, by the time a trade appears obvious, it's usually the wrong trade.

A critical part of trading is the ability to prepare for, and sometimes act upon, the opposite of what seems obvious.  That's far from being the entire skill-set, but it's a key part of it:  You have to be willing to sell when everyone is screaming "buy!" and be willing to buy when everyone is screaming "sell!"

By way of example, one of our forum members commented (on Wednesday) about how I was holding my ground on the bear case, and I replied:

I've just made it a policy not to flip to bullish at resistance, unless there's an incredibly clear reason to do so -- and, from the perspective of the wave pattern, anyway, there isn't a good reason yet, since we could easily still be completing wave C of an ABC flat. The tricky thing is: C-waves are supposed to make everyone bullish -- especially in a flat, where they hold the A-wave low, then break the A-wave high and thus make a "higher low, higher high," which is almost universally considered to be bullish by technicians.

Since we were bearish at the most recent top, nimble bears likely captured enough profit on Friday's decline to assure that -- no matter what happens from here regarding the intermediate picture -- the most recent bear trade will end up in the "plus" column.

Regarding the intermediate term, bears can clearly be hopeful -- but newer traders probably won't understand that I was actually more bearish near the recent top than I am now.  Part of the reason for that is because both the intermediate-term (IT) bear count and IT bull count were in agreement to this point (see SPX 2-hour chart -- fourth chart below).  So, from the standpoint of both my preferred and alternate count, I was essentially assigning 100% odds to this recent decline.  But at this point, the bull and bear paths can diverge.

Thus, I believe bears should be a bit cautious now, since the market has not eliminated the bull options from the picture and we're still inside a multi-month trading range.  And since this ain't my first rodeo, I am well-aware that the information sent to us by the market from inside a trading range can be garbled and misleading.

In any event, there's nothing that screams "bullish" yet -- bulls will need to make a better case than they have with the recent price action.  I'm simply warning that bears should remain aware of the caveats and turn cautious now --but obviously, the bear case remains alive and well after Friday's monster sell-off.

Interesting to note that INDU just retraced roughly 70% of the last three weeks of rally in essentially one single session.  That's not typically a bullish signal.  So the bear count remains slightly favored, but the market may have more tricks up its sleeve, and I certainly wouldn't accept anything but clear, low-risk entries from here.

We'll start with INDU's chart.  I hesitated to even attempt drawing the potential bounce path (blue dashed line), since I have only a minor bounce at Friday's low to draw from -- but I gave it a shot anyway; just take that path with a grain of salt right now.

No change to INDU's trend line chart, except to note that the decline has, so far, found support at the trend line from the February lows.

Here's another way to look at INDU, which I found intriguing:  (continued, next page)

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.