SPX and INDU: Is the Market Plotting to Add Insult to Injury to Both Bulls and Bears?

On Friday, bulls put together a decent rally, thus trying to convince us that perhaps they had indeed completed wave 2 of the bull count at 2177.  Of course, we are still within a six-month trading range, and range-racing is the norm at this point -- so we have to at least remain aware of the fact that fast moves don't necessarily mean much within a range. 

The true extent of the current noise zone is best illustrated via the Dow Jones Industrial Average Ordinary Mediocre:

With that chart out of the way, or still in the way, as the case may be, let's take an updated look at the bull and bear options.  First, the bull option, which shows SPX having recently completed a fourth wave triangle.  I've continued the bull count onto an additional chart, for purposes of better illustration -- so we'll pick up again on that additional chart in a moment.

Before we get to the bull count continuation chart, let's take a quick look at the bear count, which still remains technically valid after Friday's rally:

And now back to the bull count... 

I've been toying with the idea of a diagonal for several months now, and have mentioned the idea previously on more than a few occasions -- but the market may finally be offering one hint as to how a diagonal could materialize here.  I've shown that option on the chart below:

In conclusion, we're still stuck in what is, at this point, a pretty old chop zone, so the market continues to keep numerous options on the table.  The diagonal might make a nice final way for the market to add insult to injury to both the bulls and the bears, but for the moment it has to be treated as speculative until there is a bit more evidence to support it.  Trade safe.

SPX and INDU: Bull and Bear Cases Still Both Remain Valid

On April 24, I discussed that SPX had a decent shot at retracing to 2080-85 before it would have a chance to really get much going on the upside, and in yesterday's session, SPX reached a low of 2077 before beginning to bounce.  The question now is whether this is the start of the "real" bull leg, or whether this is simply part of an ongoing correction.

The answer isn't entirely clear, unfortunately.  We're several months into a trading range now, and as I've been warning for a while, it becomes increasingly challenging to read into the patterns.  Accordingly, I'm going to continue publishing both the bull and bear perspectives for the time being.

On the SPX chart, we'll begin with one of the bear perspectives.  SPX does now have a break at the lower blue trend line, which is something of a change of character from the last four weeks or so.  Does it mean it's the end of the world for bulls?  Not necessarily -- the key understanding with trend lines is somewhat self-explanatory, in that they represent (of all things) trends.  We are not currently in a trending market, so trend line breaks carry less weight than they would in an established trend.  Nevertheless, it's worth watching how the market reacts to the breaks of the blue and black trend lines on the chart below, particularly how it responds on any back-tests of said lines.

Moving over to the bull view, and we can see that SPX finally tested the zone I was anticipating it would test on the 24th -- and this test does not negate the bull counts.  The first informational level on the downside is 2072, and I've outlined the next bull option if that level breaks.

INDU still hasn't done a thing to provide any additional information, and this "informational blackout" has been ongoing for months now:

In conclusion, I hesitate to get too married to any particular outcome at this inflection point.  If the decline was wave 2 of a bull wave, then it will be straight on to new highs from here.  The issue for bulls is that, on a near-term basis, it appears unlikely the decline is entirely complete.  Due to the nature of trading ranges, it would be somewhat foolhardy to make a "strong" call, but I would not be terribly surprised to see the next bounce sold to new lows -- however, I would caution bears against front-running in a market like this, and if bears wish to play at all, personally, I'd await only clear, low-risk entries (not trading advice!).  Frankly, the best times to sell have been into resistance once "everyone" thinks a rally will never end -- in the most recent past, anyway, once a decent decline takes hold, it has often been too late to participate.

So, for bears, watch for rally structures that appear to be complete ABC's, followed by the first small impulsive decline.  For bulls, watch for a rally that develops via five wave upwards structures as one signal that the upside will continue.  Trade safe.

 

SPX, INDU, BKX: FOMC Wednesday

In the past couple updates, I talked about how the market appeared fractured and undecided, and suggested that this hinted there may be some curveballs coming.  On Monday, SPX threw its first curveball to bulls, though this move had been telegraphed rather plainly by BKX all the way back on Thursday.  (I showed the BKX chart on Friday, then on Monday I suggested that readers refer back to Friday's charts via "no change since Friday.")

BKX did indeed break its April 22 low, as the preferred count (in fact, the only count I labeled) anticipated.  Now it enters into territory where the pattern can go either way.  The first chart below is how bulls would count the decline, but I'm not entirely sold that this is the only interpretation (see second chart that follows).

This next chart discusses a more bearish option:

Since SPX is still inside the chop zone, there are a great many options that remain in play, so I've decided it might help to move the bull and bear counts onto different charts.  We'll start with the bull count, which still has the potential for some nice near-term bearish twists:

The bear count has two near-term variations, but one intermediate end result.  I've discussed some of the warning signs in the annotation at the bottom. (continued, next page)

SPX, INDU, NDX -- while The Fed Prepares for the Playoffs

This week, the Fed meets to discuss whether or not they should choose an official mascot (in the form of a cartoon animal) and start referring to themselves as "The Fighting Fed," in preparation for the eventual final showdown with the rest of the world's central banks, at the culmination of the ongoing Currency Wars.

At the Fed's last meeting, Janet Yellen announced that the Fed had already chosen their official team colors (they chose the colors "clear" and "plaid"), so we're looking forward to the unveiling of the Fed's new team uniforms on Wednesday -- just in time for this weekend's big game against the PBOC.  Ben Bernanke will be on hand to help retire his jersey.

Of course I'm only kidding about some of that (though I'm not entirely sure which part).  But either way, we do find ourselves in the midst of a Fed Week, and that means the market will be waiting with baited breath to hear whether the Fed is "cautiously optimistic" about raising interest rates, or "optimistically cautious" about keeping rates steady. 

The charts still seem to show a market that is, overall, somewhat undecided.  SPX is attempting to breakout from its multi-month range, but hasn't quite done so yet; NDX has broken out from a continuation pattern; INDU is trading near the upper edge of its multi-month trading range; TRAN is still trading in the lower half of its range.

Perhaps these markets are waiting from a cue from the Fed to get on the same page, but overall, I'm not seeing the current picture as terribly conducive to conclusive wave counts -- I'll cover that in more detail on INDU's second chart below.

Let's start with INDU, which is still within its range:

 

To get an idea of how many options are possible from an Elliott Wave perspective, I've outlined the obvious ones on the INDU chart below, and listed the simple vs. complex ways to view things:

NDX, on the other hand, has broken out, in an apparent repeat of its last range and breakout:

For SPX's chart, I'm just going to keep things super-simple for today's update:

In conclusion, various indices have continued to give somewhat mixed messages, and may be awaiting word from the Fed before getting on the same page.  Right now, there isn't much that makes me want to trade this market for more than short-term scalps, so I feel that (at this exact moment, anyway) there's nothing significant to add beyond Friday's update.  Trade safe.

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)