SPX and INDU: Letters from the Chop Zone

It's been a couple days now since I ran out of titles for articles written from within the Chop Zone, and morale is dwindling.  Yesterday, we finished the last of our food.  Then, last night, Rob wandered a bit too far from camp, and was bitten by something resembling a spider, only bigger, and with more teeth.  I think we may have to amputate his leg.  He probably won't be happy about that, since he was bitten in the right arm.  Melissa finally went nuts this morning and burned all our maps, not that they were doing us any good.  We just can't seem to find our way out of the Chop Zone, and many are losing hope.  Billy ran off into the woods AGAIN today, completely naked, while screaming, "Chop Zooooone!  Still!!!"  We haven't seen him since.  I think the group is finally starting to crack.

Since last update, the market raced back to the top of the range, and here we sit.  There just isn't anything to add until something meaningful happens, so today's update will cover a few seemingly-significant upside levels.

First is INDU:

And next SPX:

In conclusion... hey, here comes Billy!  Figured he was gone for good.  Sorry -- in conclusion, there are some pretty bullish patterns that remain on the table, but terminal patterns often mimic bullish patterns, otherwise there would be no one left buying.  Thus, we'll watch the upside resistance zones with a close eye for clues.  If the market can even break the prior highs, of course, and it shouldn't surprise anyone if it doesn't -- so far, every prior run up here has been rejected.  Trade safe.

INDU and SPX: Today's Title is Stuck in the Trading Range, Check Back Later

This market long ago abandoned all but the most die-hard traders, so congratulations if you're still paying attention to it.  This has been a short-term traders' market for several months now, and not really a market that would interest folks who have other things to do.  Eventually, this trading range will end, and we'll go back to some sort of trending market that lends itself better to swing trades -- but for now, it is what it is. 

As of Tuesday's close, there's been no real change to the prior update.  Monday's session saw a deep retrace -- which (hopefully) made the only count I posted into a winner for anyone who played along and stayed nimble.

Near-term, INDU has the appearance of an ending diagonal, but I'm not 100% certain it's a true ending diagonal.  It may instead be a simple bearish rising wedge, which leads to a fairly deep retrace prior to another leg up:

There's really not much to add beyond the chart above -- but below is SPX's updated chart, with a few additional notes:

In conclusion, Monday's wave count tracked well enough to make for a winning trade, and there's been no new or revealing information from the market since then.  So, until we have a new key level break, there's not much to do but watch and wait from here.  Trade safe.

SPX and INDU: Market Still 'Home on the Range'

I'm just going to come out and say that I'm getting rather tired of this trading range.  Charting it has grown increasingly more difficult over the past few weeks, and until there's a sustained breakout or breakdown, there really isn't anything substantial to add.  We can speculate on what comes next until we're blue in the face, but simply recognizing the range for what it is, and trading accordingly, has been more valuable of late.

I think both bulls and bears are starting to feel like the confused shopper in the photo below, and growing a bit impatient waiting for the checkout line to move:

The chart below (again) shows why everyone is feeling that way: 

Obviously, there's still no change to the intermediate picture (let's just hope we're all still sane when there finally is):

Near-term, INDU looks like it may be working on a complex flat.  I'm hesitant to get too married to this, because the pattern has already put together a series of several unusual waves, so there may be more coming before it's all said and done -- but this is my best guess at the moment.  Note that wave (B) does not have a true invalidation level. 

Beyond that, I'm not going to update any particular wave count at this juncture, because the options are presently bordering on infinite.  It's been a long time since I've seen the market so noncommittal -- so I think it's more valuable to simply continue to recognize the trading range for what it is right now, and to simply remain focussed on the present until things clarify again:

In conclusion, in the event the market can sustain a breakout over the noted resistance zones, then we'll have to respect that breakout for as long as it lasts -- but do keep in mind that INDU is currently hinting that the range may still have more down/up frustrations planned.  The caveat to that is the same as I've continued warning for the past several weeks:  the more often we traverse this range, the less reliable the patterns become.  Right now, the reality is that almost every wave (up and down) looks corrective -- so this pattern has kept its options open and thus left us waiting for the next key level break, which will allow us to at least begin definitively eliminating what the pattern is NOT.  Until then, trade safe.

SPX and INDU: Trying to Make the Complexities Simpler...

Lately the Fed has been doing something different, and no, I'm not talking about their personal hygiene:  They've been talking down the market.  Yellen recently stated that stock valuations were "quite high" (whatever that means).  I feel like I can barely remember the last time the Fed believed that equities were overvalued in terms of the broad market.  To my recollection, the last time that happened, a fella named Greenspan was involved in sort of an irrationally exuberant way.  (Yellen talked down "smaller firms" in social media and biotech last year, but not the entire market -- and taking shots at social media doesn't even count, because social media is virtually always overvalued.  As far as I'm concerned, anyway.)

So it seems that maybe, just maybe, the Fed has finally begun seriously considering the idea that it doesn't need to be quite so incredibly accommodating anymore.  Assuming the Fed stays consistent in that view and begins tightening, that will ultimately have an impact on the market. 

Of course, it bears noting that when Greenspan made his "irrational exuberance" comments in 1996, the bull market still had several years left in its tank.  But we are certainly in a different position now than we were then, and I have maintained for some time that we are in uncharted waters.  The 90's bull market wasn't launched (and then carried) on the back of Quantitative Easing; and neither was any other prior bull market in history.  So it remains to be seen how this current bull market ends, and whether or not it will end in a similar manner as previous bulls.

So, with that simple stuff out of the way, let's take a look at the charts.  As I've been continuing to note for several weeks, we're still inside a very well-traded range.  The trouble with trading ranges is that they create a ton of noise on the charts, and noisy patterns give the market a lot of options in terms of wave patterns.  It's thus becoming increasingly difficult to try and simplify the charts into something easily-understandable, but I've tried my best to do so.

What we'll do is start with some basic charts and work our way up in complexity.  First off, a simple near-term support and resistance chart.  This should be viewed with the understanding that near-term support and resistance grows increasingly weaker (and eventually meaningless) inside an old trading range:

For the bigger picture, this is the most simplistic chart I can come up with for SPX:

Moving over to INDU, we can see that the pattern is actually growing exponentially more complex, but I've tried to reduce all that into a few fairly simple concepts: (continued, next page)

SPX, COMPQ, TRAN: Still in the Range, but Here are Some Key Levels

Since last update, SPX rallied, then hit the upper edge of the trading range and collapsed again.  The trading range continues to reward those who have recognized it for what it is, and are trading it like a range, while punishing traders who hold their positions for longer than a few sessions.  Bulls who bought last week's decline and held are now, at best, at zero profit.  Many of them have likely already been stopped, or are in drawdown (unless they bottom-ticked it last week).

Let's get right to the charts, because there's a bunch of them.

First off, readers have been asking about the potential diagonal:

Basically, until 2072 is broken, the most immediately bullish counts remain technically possible:

If SPX sustains trade below 2072, then we probably have to give the odds to the bear count until proven otherwise:

Here's a basic near-term resistance chart for SPX: (continued, next page)

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.