SPX, INDU, TRAN, AAPL: The Market Closes in on New Clues

I'm going to let the charts do most of the talking for this update.

First up is TRAN, which is approaching a key overlap.  Note that a break at the overlap still allows the ultra-bullish potential of a nested 1-2 count, but a sustained break would suggest that perhaps the rally was a complete fourth wave (bear 4):

A few folks have asked if there's a count that allows a new low, followed by a new high.  I've been publishing this chart as is for a while, but I'm highlighting it again for folks who missed this last time:

Apple presents an interesting chart, because this pattern shows a ton of buyers were waiting at that last dip.  A breakdown of the crash low would thus be very bearish (because it would show that buyers exhausted themselves in one fell swoop), but until that happens, this chart is at least a warning to AAPL bears:

Next is the SPX near-term preferred count.  The pattern at least allows the possibility for a complete c-wave decline, even if that may be less probable:

In conclusion, the market is at an inflection point that could provide additional big picture clues over the next few sessions.  Trade safe.

SPX, INDU, ES, HYG -- An Interesting Fractal Comparison to the Current Market

The price pattern has become an order of magnitude more complex over the past couple weeks.  On Thursday, we had a breakout that reached the first if/then breakout target of 2019-28 (shown on September 9), before reversing hard and fast.  Because expanded flat b-waves are allowed to violate key levels, this still leaves the preferred count on the table:

On the chart above, do keep in mind that blue (c) could instead be wave (3) of v, and thus ultimately rally to new highs.

My main argument for an expanded flat is still simply the fractal.  Last night in ES, a very similar fractal formed on the one-minute chart.  I traded that as a b-wave into the high, and indeed, price retested the low, then reversed back up and broke out (second chart).  Compare the chart below (ignore magnitude) with the chart above, and see if you can spot how similar the two fractals are.

Note how that pattern resolved:

The trouble bears have on an intermediate level is that it's a stretch to come up with bear counts.  Not impossible, but we have to resort to rare "triple three" patterns, or other unusual waveforms (triple threes are the Elliott Wave equivalent of a grunt and a shrug):

The HYG:TLT ratio provided fair warning, well in advance, that equities were diverging, and now it's reached an interesting inflection point.  If it breaks down here, there is a significant amount of downside potential -- so this continues to be worth watching.  If this ratio breaks down coincident with the market, then perhaps the more immediately bearish patterns are in play.  If support holds, of course, then no harm, no foul.

The straight-up bull count for SPX still remains alive for the moment as well:

In conclusion, frankly, this isn't my favorite "market moment" right now.  I spent a long time staring at charts this weekend, and this month's rally is truly one of the most ambiguous waves I've seen in quite a while -- so I can't be 100% certain of anything, but I'm modestly inclined to continue favoring the expanded flat preferred count (first chart), even after Thursday's curveball.  That nasty whipsaw does throw a bit of ugliness into the chart, so the more bearish patterns remain alive, and can't be written off.  We'll simply have to see how it pans out from here.  Trade safe.

Does TRAN Hold the Key to Determining if a New Bear Has Begun?

When does a bull market become "invincible" in the mind of investors?  It becomes invincible when every decline, no matter how scary or panic-driven, is ultimately bought back up to new highs.  At the point where a bull market is viewed as invincible, ma and pa investor (and everyone else) finally decide, "Hey, stocks are a SAFE investment for the long term!  Look at this, ma, another new high!  I done knew we shoulda bought us some of them equators!  Or equities, or whatever they's called."

Once a bull market is viewed as safe, never-ending, a permanently high plateau, etc., then it has finally sucked in every last buyer... and it's free to collapse.

The question people are still asking is, "Are we there yet?"  On August 31, I wrote the following:

The question everyone wants answered is:  Are we in a new bear market now?

The correct answer is that no one knows for sure.  All of us can speculate, though some folks tend to speculate more forcefully than others, sometimes pounding their fists on desks to drive home the point that their speculation is vastly superior to all others, and thus to be taken seriously.  But they're still speculating in the end.

The lingering question in my mind is whether this decline was a high degree fourth wave, or the start of a new bear. 

Later in the article, I drew the conclusion that more downside appeared reasonably likely, and thus that we could return to the "new bear, or bull correction?" question later.  Since then, the market has essentially traded sideways, thus flummoxing all attempts to to address the relevant conundrum.

Near the beginning of 2015, TRAN was one of the markets that helped me start looking down when most were still looking up -- hopefully it can function as well again now as a broader guide.  Heading forward, I think I'm going to use the Dow Jones Transportation Average (TRAN) as the long-term bull/bear waypoint, for the reasons outlined below. 

I must admit that, given the near-term patterns, it's become very tempting to start favoring the bull count.  Nevertheless, I'm going to refrain from doing so unless SPX can sustain a breakout over the 1994 zone.

The bull count is shown below.  To meet the qualifications of "sustained trade" in a breakout, the market can either break and run, or should demonstrate that resistance has become support in subsequent back-tests:

In conclusion, the near-term pattern has developed in a such a way that the bull count must be respected, but it must also be treated as suspect until 1994 is claimed.  Much as I do not believe news is a driver of the market, the actions of the Federal Reserve do not represent simple news per se, but instead represent liquidity -- and liquidity is indeed an important driver of the market.  Thus the pending Fed announcement will most likely allow the market to finally break from this month-long holding pattern.  Trade safe.

SPX, NYA, NDX: No Material Change

Nothing much has happened since last update, but I've added a couple charts to help explain why I'm slightly more inclined to favor a complex correction (as outlined last update).  Let's start with NDX:

Below is a look at the preferred count in SPX:

I'm continuing to discount the immediate bull option, so I've moved it onto its own chart for now:

NYA contains additional details regarding the preferred count:

In conclusion, there's no material change since last update, and the near-term bear options remain preferred unless bulls can sustain a breakout over 1994.  The pattern in NDX and RUT (not shown) may be providing fair warning to bears to protect profits in the event we head lower over the near-term, though.

If I were the market, and wanted to punish the greatest number of players, I would know that the toughest pattern for bears to trade would be a true expanded flat that breaks the 1867 print low before whipsawing back up to break 1994 -- because a breakdown at 1867 would at least open up the potential of a third wave decline, so there would be no way to know for sure that the market wasn't about to collapse again.  Thus, in the event 1867 fails, I would then watch for small impulsive rallies as a potential warning of a coming larger c-wave. 

Do note that expanded flat b-waves (the presumed current wave of the preferred count) are some of the toughest and most prediction-resistant waves on the planet.  A b-wave is allowed to retest the low without breaking it, or break the low and whipsaw.  Accordingly, we'll simply have to track it as it unfolds, assuming, of course, that 1994 continues to contain any rallies.  Trade safe.

SPX, NYA, VIX: A Complex Correction?

Last update noted that SPX 1994 was the level to beat for bulls, and included the following brief discussion about trading ranges:

From an analytical perspective, range-bound markets are typically the most annoying.  After a while within a range, I've often found that traders begin to imagine all sorts of things, and ranges typically make people either more bullish, or more bearish, depending on whether we're near the top or the bottom of the range.  Right now, we're near the top, so bullish is in fashion -- but I always like to remind myself that nothing happens within a range.  Something happens when it sustains a breakout or breakdown.

SPX then proceeded to gap up, but was rejected just south of 1994 -- and reversed to the tune of 50 points, thereby proving my point about trading ranges, and hopefully preventing readers from turning bullish at exactly the wrong time.  This pattern leaves open the possibility that the current (presumed) fourth wave is forming itself into an even more complex correction, as shown below in SPX and NYA:

NYA:

Finally, I don't try to apply Elliott Wave to VIX, because it's essentially an oscillator and a zero-sum game.  Regardless of that, I found the current pattern interesting:

In conclusion, I'm very slightly inclined to favor the idea that the market is forming a complex fourth wave correction as shown -- this pattern would be near-term bearish, then turn bullish for a spell, then be bearish again.  However, a sustained breakdown at the low would force us to treat the market with kid gloves, and even though a b-wave could do that, front-running a rally after such a breakdown would be out of the question.  On the bull side, in the event bulls can sustain a breakout over 1994 before a stronger decline takes hold, then bears probably want to be extremely cautious.  Trade safe.

SPX, NYA, INDU: Will the Fed Stick-Save the Bulls, or Hang Them Out to Dry?

Last update discussed that, from a long-term perspective, it was still too soon to say if we had completed/were completing a high-degree fourth wave, or if a new bear market had begun.  Near-term, I noted the potential of a complete fractal and the possibility of an immediate top, and since then, SPX dropped 80+ points, which, as of today, it will have also recovered.

From an analytical perspective, range-bound markets are typically the most annoying.  After a while within a range, I've often found that traders begin to imagine all sorts of things, and ranges typically make people either more bullish, or more bearish, depending on whether we're near the top or the bottom of the range.  Right now, we're near the top, so bullish is in fashion -- but I always like to remind myself that nothing happens within a range.  Something happens when it sustains a breakout or breakdown.

Let's start with the long-term chart that I started publishing back in March, when I began suggesting that a major correction was drawing near.  The decline was a bit violent for a fourth wave, but that's not impossible given the historical rally that preceded it.

One of the things I wrote about more than a year ago was that the first major screw-up by a central bank would likely lead to a the big fourth wave -- but that they would probably recover from the first screw-up, and that would lead to the big fifth wave, just when bears were convinced the end was beginning.  I recently read some interesting comments from Peter Schiff, who argues that the Fed's talk of rate hikes played a strong role in the market crash, and that QE4 is forthcoming, because the Fed has no other way to continue the bubble economy.  That would play into my standing theory that the central banks might stick-save the market just when things began to look bleak, and thus create another leg up in the bull market.

Under this theory, eventually, the monster they've created will indeed spiral out of their control, and that will be when we finally see the "real" bear market.  That is, of course, presuming it hasn't begun to unravel just yet -- which it very well may have.

Let's start with the super-simple long term chart:

 

Next, the less-simple long term chart:

Below is a near-term chart of NYA, which notes the market's interesting position relative to base-channel resistance.  This chart focuses on the most-bearish near-term count.

SPX near-term:

In conclusion, at this moment just about everything that could be up in the air, is up in the air.  Near-term, we've been stuck in a range.  Intermediate and long-term, we don't yet have a clear impulsive decline.  Hopefully the next few sessions will at least begin to eliminate some of the near-term options, which will allow me to flesh-out the intermediate picture a bit better.  Until 1994 is claimed, the most bearish near-and-intermediate-term options remain on the table.  Trade safe.

Market Update: Is Bearish the New Bullish?

The question everyone wants answered is:  Are we in a new bear market now?

The correct answer is that no one knows for sure.  All of us can speculate, though some folks tend to speculate more forcefully than others, sometimes pounding their fists on desks to drive home the point that their speculation is vastly superior to all others, and thus to be taken seriously.  But they're still speculating in the end.

The lingering question in my mind is whether this decline was a high degree fourth wave, or the start of a new bear.  The funny thing is, as long-time readers know, for most of 2015, I was anticpating that we were in a topping process.  Five and a half months ago, I published the following chart, and made the argument that the market was completing fifth waves at multiple degrees, and therefore far more likely to be topping than to be gearing up for a new bull leg, as many analysts were expecting. 

Of course, let history reflect that I was early in calling for a major correction... by 62.73 points on the Dow Jones Industrial Average, which is about one-third of one percent (.34%).

(And congratulations to the big name TV analysts who, over the past few weeks, started calling for a top.  Welcome aboard!  We've missed you for these past six months.) 

The two charts below were drawn up just before the crash, and published in our forums.  (And for the public record, on August 21, I described in the forum how I was seeing very real potential for an actual crash on the 24th.)

The chart below was drawn on the 21st, but I haven't published it publicly yet.  At the time, INDU was in the process of whipsawing its massive megaphone -- obviously, it has since happened.  This is one of the other things that makes me wonder if we're in a fourth wave, or something much more ominous.

Basically, a lot will depend on the coming sessions.  SPX shows why, in the simplest possible format:

Here it is in a more complex format:

Next, a short-term chart of INDU shows that the rally could be complete:

Finally, I was a very active trader in the 2000-2003 and 2007-2009 bear markets -- in my "first" bear (2000-2003), I got pretty burned buying puts at the wrong time.  So, the following chart is presented as something of a public service to any traders who may have limited experience in bear moves:

In conclusion, the question of whether we're in a bear market yet may be a moot point.  The real question is simply:  "Is there more decline still coming?"  At this juncture, we have a three-wave rally that could be counted as complete.  That makes the current resistance zone the first inflection point, and how the market reacts to this zone will be telling.  One aspect of the current market that seems characteristically different from the bull is the sloth which with the current rally has recovered from the lows.  Perhaps that will change in coming sessions.  It's been a volatile market, but the current rally hasn't left the characteristic V-bottom of recent bull market lows -- and perhaps that's a hint that the final lows aren't in yet.  Trade safe.