SPX is Testing a 30-Year Trend Line

Today is, of course, the infamous Fed Friday, so all eyes will be turned toward the Fed announcement later today (or should that be "all ears"?).  It's expected that Fed Chair Janet Reno will finally reveal exactly WHAT happened in Waco, Texas nearly 23 years ago, when she was Attorney General.

Wait!  I'm thinking of the wrong Janet.  Hang on, let me consult my notes here...  Okay, my notes say I'm supposed to get a gallon of milk and something called "Orange Pineapple Tang" on my next trip to the grocery store, so I'm just going to have to wing it on this FOMC thing.

Without more than a cursory glance at what the analysts are saying, I'm going to safely assume that bulls are hoping the Fed will say something dovish, such as: "We only use Dove Brand Moisturizer, here at the Fed," while bears are hoping the Fed will remain hawkish.  The overwhelming consensus among analysts is undoubtedly that the Fed will, indeed, say something -- but there is probably a lot of disagreement about what exactly that will be.

The charts seem to reflect a slightly undecided market, and there's still no real change since SPX, RUT, and NYA captured their respective downside targets, but I have drawn up a few new charts of SPX.

We'll start with a five-minute chart, then move onto a weekly chart.  Keep in mind that trades today are best approached with the understanding that FOMC days often mix headfakes and whipsaws into the action:

The long-term SPX chart reveals that the market is currently testing an interesting trend line, which has acted as both support and resistance over the past 30 years:

Here's a zoomed-in look at the chart above:

Nothing to add on the hourly chart, but the charts above should have provided some added perspective:

 
And finally, RUT is back-testing its broken red channel:

In conclusion, the market is "secretly" testing a very long-term trend line, and sometimes that in itself causes some volatility -- so, combined with the pending Fed statement, the second half of this week might get interesting.  For the moment, I remain content to let the market lead until the pattern clarifies again, but I'm also inclined not to get too bullish until the market reclaims, and sustains trade north of, the aforementioned long-term trend line.  Trade safe.

NYA, RUT, SPX: No Material Change

Last update concluded:

SPX and RUT have both captured their preferred targets for significant profits, so now we're going to watch what happens next and let the market declare its next intention.  As I mentioned, if I was forced to pick a side, I'd be inclined to think that the decline isn't done in the bigger picture -- but just about anything is possible over the near term here, and a decent bounce would be quite reasonable.

As of right now, anyway, there's no real change, in the sense that the market hasn't done anything to tip its hand and provide additional clarity.

Let's take a look at a few charts, starting with NYA, which hit its intended target (although the lower trend line was a bit higher than the 8800ish level I'd estimated it would be crossing when tagged):

No change to RUT below:

And no material change to SPX:

In conclusion, we're still inside territory where the wave is less predictable than it's been over the recent past.  In ambiguous price territory, I'm content to simply let the market lead for a bit, while awaiting for the next "eureka" moment.  Trade safe.

SPX and RUT Capture Downside Targets

Yesterday saw the capture of the preferred count target zones in both RUT and in SPX.  Folks always wants to know "what's next?" -- but this is a good moment to relax and enjoy the completion of some very successful trades.  As I wrote last night in our forum:

Random Trading Psychology Thought: Sometimes it's a good idea to take a moment to allow a big victory to settle in before rushing off to fight the next battle. Daily study is a discipline, but never-ending daily account expansion is impossible, and trying to achieve it only leads to ruin.  In other words, after a big win, taking a victory lap with the attitude that "I won that round, so I don't NEED to know what happens next" is often beneficial to one's account. In my humble opinion, of course.

Accordingly, we're currently in "victory lap" territory:  The decline might be complete, or it might not.  As I've said for years:  We don't need to know what the market will do every minute of every day, we only need to have a good enough idea often enough to make money.  And, of course, the discipline to both manage our risk, and to know when to take action and when not to.

That said, if I were forced to pick an outcome, I'd say that the odds probably still favor further downside before it's all said and done -- I'm just not sure how actionable that is at this exact juncture.

One potential warning for bears is that not only were downside targets captured, but RUT actually retraced all of yesterday's drop and then ended the session in the green.  That type of price action can be a signal of a near-term bottom, so bulls might take control of things for a spell.  If bears can sustain a breakdown, then that bullish signal would be rendered null and void.

Note that RUT bounced almost perfectly off the dashed blue megaphone line, which was highlighted as potential support back on January 8 (that line was, in fact, what led me to the 975 +/- target zone in the first place).  In any case, that support line was, and remains, the dividing support zone between targets 1 and 2.  In other words, if bears can sustain a breakdown there, then we should probably look towards target 2.

SPX captured and exceeded its 1825-35 target zone -- that target was arrived at using the "eyeball method" (the "eyeball method" involves looking at the wave forms, studying how they relate to the overall chart, and then deciding where the market's going from there.)

In conclusion, SPX and RUT have both captured their preferred targets for significant profits, so now we're going to watch what happens next and let the market declare its next intention.  As I mentioned, if I was forced to pick a side, I'd be inclined to think that the decline isn't done in the bigger picture -- but just about anything is possible over the near term here, and a decent bounce would be quite reasonable.  Trade safe.

SPX, INDU, XVG: 25-Year Chart Suggests Major Inflection Point

While I've remained consistently bearish for 200 points of decline in SPX, the waveform has finally worked its way into a position where it has enough technical structure to at least allow for the potential of a complete decline wave.  Thus, it's not a bad idea for bears to be cautious at current levels, and allow the market some room to bounce, and possibly to form a complex correction.  I've detailed one version of a complex correction below, on INDU's chart:

SPX might follow a similar path.  Frankly, there's not enough structure (in the form of a bounce) to consider this as anything other than speculative at the moment, and it's entirely possible for the market to keep dropping here -- but again, it's certainly prudent for bears to at least remain somewhat cautious now, in the wake of 200 points of profit.

On the chart below, I've noted the outside possibility (in black) of enough fourth and fifth waves to form a complete decline.  I'm not favoring that view, but it's technically possible:

Last but not least, this weekend I took a detailed look at the Valueline Geometric Index ($XVG). 
The Valueline.com website descibes this index as follow:

On June 30, 1961, we introduced the Value Line Composite Index. This market benchmark assumes equally weighted positions in every stock covered in The Value Line Investment Survey. That is, it is assumed that an equal dollar amount is invested in each and every stock. The returns from doing so are averaged geometrically every day across all the stocks inThe Survey and, consequently, this index is frequently referred to as the Value Line (Geometric) Average (VALUG). The VALUG was intended to provide a rough approximation of how the median stock in the Value Line universe performed.

The chart below provides an interesting look at the long-term potential of the current wave structure in XVG, and also shows crude oil in the bottom panel:

In conclusion, we're into price territory where some degree of bear caution might be in order -- but do understand that there is no basing pattern evident yet in the wave structure, thus I cannot definitively call for a significant bounce.  This is more of a technical potential to be aware of at the moment.  As noted previously, the current decline does fall into the third wave position, and third wave declines are notorious for failing to bottom where indicators and speculation say they "should" -- so, until we have a bit more wave structure from the market, both bulls and bears should remain nimble.  Trade safe.

SPX, INDU, RUT: Updating the Big Picture

Not much to add since last update -- SPX reversed lower from the noted MB: 4 inflection zone, then proceeded to break the prior low, which validated the ST view that the bounce was simply a countertrend corrective wave.  That could be all she wrote for that correction, but there is always the potential for that fourth wave to become more complex (the b-waves of complex corrections are allowed to break prior lows or highs, while still functioning as part of an ongoing corrective sequence -- so a break of the low doesn't guarantee the end of a fourth wave).

Today, we'll also take a look at some of the bigger picture charts.  First, the updated SPX chart:

Next up is RUT's updated chart.  RUT appears to be tracking into its first downside target zone.

Finally, let's update INDU's chart from November.  Folks have been asking if the decline is part of Primary IV, or the start of a new bear.  My argument from the beginning has been:  It doesn't matter.  On December 21, I announced that it was my belief that we were on the cusp of a significant decline (See:  TRAN Warns of Potential 4000 Point Decline in the Dow Jones Industrials), and INDU has lost roughly 1000 points since then.

My thinking is this:  At the point which the market clearly states that its intention is to head markedly lower, I don't see much value in worrying about whether that large decline will be a fourth wave, a second wave, or the start of a new bear.  No matter what the case, once the market says its heading lower, possibly a lot lower, my trade bias will be to the short side.  From there, I trust the market will tell us when the decline is wrapping up, just as it told us when the rally was ending.

And we can only trade the present, after all.

In conclusion, there is still nothing in the charts that indicates a significant bottom is forming.  That could always change tomorrow (well, not "tomorrow," since tomorrow is Saturday.  It's just an expression!  Sheesh, don't be so literal.), of course, but as was just mentioned, we can only trade the present.  While I was able to accurately predict the August 24 crash, I'm not quite willing to "call for a crash" here, but do be aware that the potential is certainly present in the current pattern.  In any case, whether we get a true crash or not, the waves still appear to be pointed lower for now.  Trade safe.

SPX and Crude Oil: Crude Oil Validates Preferred Long-Term Count from 2011

During Monday's session, SPX captured its 1897-1911 target, and this has generated a bounce.  Presumably, this bounce is a fourth wave, though, as discussed previously, we're still unable to rule out the possibility of a large expanded flat (which would be short term bullish, but still intermediate bearish).  So, there's no real change there, and the preferred intermediate count in equities remains bearish.

On another note, VERY long-time readers know that I've stayed consistently bearish on oil for the last five years running.  Back in September of 2011, I published my preferred long-term wave count (updated sporadically since then), with a WIPEOUT target of 25 +/- for oil.  I further wrote that I was favoring that long-term count by a 90% margin, which is as about as bold and certain as you'll ever hear me get about anything (inside or outside the market, for that matter!).  Four and a half years ago, more than a few people thought I was nuts to say that oil was gearing up for a crash, not heading to the moon.  But my technical argument was that oil's 2008 crash was impulsive in structure -- and therefore it had to be the start of a larger correction, not the end of one. 

Here's what I wrote about oil in September 2011, in terms of technical analysis vs. fundamental analysis (keep in mind that, at the time I wrote this, a lot of folks were arguing that we'd already passed "peak oil"):

Crude is one of the few commodities that can be accurately tracked at cycle degree. As such, I believe we topped Supercycle I back in 2008. By the way, despite the current "peak oil" fearmongering, this argues that oil will likely be with us for a long time to come...

We are currently undergoing a correction in Supercycle II. It remains to be seen if this correction will be A-B-C for ALL OF wave II, or if this will be A-B-C of a larger A-B-C... but it doesn't really matter as far as the immediate future is concerned, so we'll drive our gas guzzlers across that bridge when we come to it.

The first thing we notice about this chart is the giant parabolic of wave V and the subsequent wave A crash of 2008. This is fairly typical of commodities as they often form extended fifth waves which retrace quickly. Add that to the fact that this is a crash not of primary degree, but of Supercycle proportions, and you get the picture. The second thing we notice is that wave B appears to be complete, with three farily-clean waves that count nicely in a 5-3-5 pattern. C-down looks like it's in the early phases.

I've been waiting four and a half years for this "against the herd" call to be validated by the market, so you'll have to forgive me for doing a little horn-tooting.  Vindication has finally come with the recent break of the 2009 print low:

Back to the present tense:  From an intermediate standpoint, oil appears to have some fourth and fifth waves to unravel here, thus, due to the size of the overall waves, some very large "backing and filling" price swings may be forthcoming in the not-too-distant future.  Be aware that a large fourth wave does not need to unravel itself in the time shown on the chart above (i.e. -- this chart is not a "time projection") -- fourth waves are known for their complexity, and it would not be unheard of for a complex fourth at this degree of trend to unfold over the course of years instead of months.

In conclusion, SPX captured its target zone, and appears to be unwinding a low-degree fourth wave -- however, the near-term "bull" count for a complex flat is still entirely possible.  Intermediate-term, the decline does not look complete yet.

My prediction for a crash wave in oil that would break the 2009 print low has finally come to pass -- and in this market, too, the chart suggests that the final bottom probably isn't in just yet.  However, be aware that the chart also suggests that a large bounce in oil, and perhaps a long and volatile sideways grind, may be drawing near.  Trade safe.

SPX and RUT: Bears Still Holding the Intermediate Cards

Last update featured an unabashedly bearish tone, and the market obliged by wiping out the opening pop, and by ending the day nearly 40 points lower than that open.  By all rights, the intermediate bear count looks like it's in the lead, but things may get a little hairy around current levels.  Bulls are looking for support here, so there may be some buyers lurking around the corner, and that could make for some backing and filling over the near term.

During the overnight session, ES hit the cash equivalent of my "MB: 3" target (SPX 1897-1911), which then generated a reversal higher.  The main thing that continues nagging at me is the potential for the (C) wave rally that I've discussed over the past few weeks.  The problem with B-wave declines is that they don't have true invalidation levels, so I still can't rule that out.  Nevertheless, for the moment, I'll operate under the assumption that the pattern is a straightforward bear wave until proven otherwise -- just continue to at least remain aware of the B and C wave possibility for the time being.

SPX's updated chart is below:

 
As promised Friday, here's an updated look at a big picture chart, via RUT:

In conclusion, we're still well-into bear territory here, and the patterns still seem to argue for an incomplete decline.  For the time being, we'll presume the straightforward bear count is unfolding, although there are still options for bulls to muster a big counter-trend rally before bears land the knockout punch.  In both cases, though, the market does appear that it's continuing to point lower for the intermediate term.  Trade safe.