SPX Update: Detailing the Waveforms

On Tuesday, I wrote:

I am presuming the rally is due for a pause (or worse), and on Friday, I discussed a real-time short entry on our private forum, at ES 2100... I still do not feel the market is correctly positioned for a large intermediate rally [note: "do NOT feel" -- a few readers read that another way].  A brief head-fake higher wouldn't surprise me one bit, but even that isn't guaranteed -- bears have, so far, held 2113 SPX, which keeps the most bearish options on the table for now.  If SPX develops a decent-sized impulsive decline, then we'll know to keep looking lower for another wave down to follow.  

The rally was indeed due for a pause, and declined to within pennies of the second downside target I published on Tuesday.  On the SPX chart, I wrote to watch for a significant bounce from one of the target zones, "likely to at least retest the 2100-09 zone."  Yesterday's high was 2100.72, but as we'll see in a moment, that may or may not mark the end of this wave.  Another down/up/down sequence is still possible.  I've detailed this (that's an understatement) on the one-minute SPX chart below:

The bigger news, though, is that the decline does appear to be impulsive, which suggests at least one more leg down after the current bounce completes.  For whatever reason, there's something bothering me ever so slightly about the impulsive appearance of this decline, but I can't put my finger on it, so it may be nothing.  However, let me take this as an opportunity to suggest that bears avoid arrogance and manage their risk, despite the expectation that the market will see another leg down before having a more serious shot at a lasting rally.

The updated 30-minute chart shows the corresponding downside targets, presuming the first leg down was indeed impulsive:

In conclusion, the decline from 2108 appears to be an impulsive waveform, which is as much of a green light as bears ever get after a blistering snap-back rally like the one that began at 1991.  Accordingly, we have three downside target zones, AND the possibility that 2108 marks a more meaningful top.  In the event that bulls can sustain a break out over the 2109 level, then we would have no choice but to rethink that, of course, although 2121 is still the more significant level.  Trade safe.

SPX, NDX, BKX: BKX Lagging Considerably

Before I get into the charts, I just have to share an example of why trying to trade news almost never works.  These two headlines arrived in my email account on the same day, within hours of each other -- and they now hold a dear place in my heart as two wonderfully silly examples of why we don't trade news.  The bottom email arrived first:

Then to make the news cycle complete, yesterday, I received this one, apparently as a gift from the god of Irony:

Anyway, just had to share that, because the first two in particular, stacked as they were right on top of each other, actually made me laugh out loud.

Moving into the charts, let's start with BKX, which has been lagging the rally in most of the major indices.  I maintain that BKX often leads the broad market, so this picture is not terribly encouraging for bulls right now.  That can always change, of course -- but this might be an early warning in agreement with my hypothesis that SPX, even if it were to break the prior highs, is probably not destined for a big intermediate rally right now.

Next is a chart of NDX that bears a warning far ahead of where the market is right now, but worth looking at again anyway.  A sustained breakdown at the blue uptrend line would be first warning for bulls:

Finally, we looked at the bigger picture options for SPX on Friday, so today we're going to focus on the near-term.  I am presuming the rally is due for a pause (or worse), and on Friday, I discussed a real-time short entry on our private forum, at ES 2100:

In conclusion, I still do not feel the market is correctly positioned for a large intermediate rally.  A brief head-fake higher wouldn't surprise me one bit, but even that isn't guaranteed -- bears have, so far, held 2113 SPX, which keeps the most bearish options on the table for now.  If SPX develops a decent-sized impulsive decline, then we'll know to keep looking lower for another wave down to follow.  Trade safe.

SPX Update: Trading by Analogy

Before I get to the charts, a few random thoughts:

There is only one reason to trade, and that is:  To make money.  We don't trade for the thrill of victory, or to prove ourselves right, or for the "excitement of the chase."  We trade to make money.  And that means one must be extremely cautious of the opposite outcome.

Essentially, a trader is a salesperson:  He attempts to buy something at a low price, and later hopes to sell it to someone else at a higher price (or, if he's a bear, he hopes to sell at a high price and buy back at a lower price).  That is the essence of trading, and one would do well to approach it with that in mind.  Many traders are completely preoccupied by a "fear of missing out" on the next big move, instead of being preoccupied with discernment, and making intelligent decisions.

I've found it sometimes helps to make the thinking behind trading more tangible via analogy, to clear out some of our irrational fears and emotions.  So:  Imagine you owned a car lot.  In order for your business to survive, you MUST buy cars for a significantly lower price than you sell them.  You must NOT buy cars that you can't sell at all, or can't sell at a profit.  And that means you have to be very selective.  You can't let yourself buy every car you see -- sometimes the asking price will be too high, sometimes the car will be a junker, sometimes there will be no demand for the vehicle.  You must maintain discipline in the face of your emotions, against your desire to maintain a large and glorious-looking inventory.  Maybe a customer comes in and wants a Jaguar, but you don't have one -- does that mean you should then rush out and buy every Jaguar you come across, simply so you don't "miss out" the next time a customer wants a Jaguar?  That would be ridiculous, wouldn't it?

Yet many traders approach their sales and purchases with exactly that mindset.  They don't want to "miss out" on ANYTHING.  If you approached any tangible business that way, you would soon find yourself bankrupt.  The same thing happens with trading.

You are going to have to pass up some iffy trades if you want to survive.  You are going to have to accept that, sometimes, you just don't know what the market is going to do next.  Maybe it will make a dramatic move that could have made you tons of money if you'd been positioned right, but you "missed out."  That's okay!  That's GOOD.  So what if you didn't have a Jaguar to sell that one day -- your last Jaguar sat on the lot for years, depreciating the whole time.  The transmission fell out during a test drive, and you ended up selling that car for a considerable loss.

You take similar losses when the market runs against you.  FORGET about being part of every move.  No car lot can stock a car for every single potential customer, and no trader can be part of every single move the market makes.  Let the emotions go:  You are in business to buy low and sell high (or sell high and buy low).  That's it.  Period.

Onto the charts.  Or, for today:  Chart.  I'm going to cram everything on to one chart here, because in a market like this one, it actually helps to see what we're up against.  Basically, if bears are hoping that this rally is going to mark a second wave, then they need to make a stand directly.  Maybe they'll do so -- we are approaching an inflection zone.

The chart below also shows a count that I've been considering for a few weeks, and that I was tracking even at the recent 1991 low -- but the market decided to throw a bit of a curveball by adding another B-wave into the mix.  I was hoping that we had already begun C-down, and thus was looking for a five-wave decline.  We had a three wave decline instead -- and that suggests the low is a large B-wave.  It could also, of course, be a large 2nd or 4th wave ABC, which is what the true bulls are hoping for (I don't think that fits the pattern as well, though).  Bears are hoping it's a nested second wave (black "bear 2").

I think there's another options, though, besides the obvious bear and bull options (which are the two options most folks will be tracking) -- the expanded flat in blue and red would punish and frustrate the greatest number of participants.

In conclusion, the most bearish of the bear options (a second wave rally) remains on the table until 2120 is broken.  If we do break 2120, I'd be surprised if that kicked off a new bull leg -- as I talked about in the prior update, the typical signs for a lasting bottom at 1991 aren't present, so I'd be more inclined to think it was the red B-wave and doomed to whipsaw quickly, thus chewing up both bulls and bears yet again.  Trade safe.

SPX and NDX: Why the Decline Probably Isn't Over Yet

Going back several weeks in the updates, I've been mentioning the zone around SPX 2000+/- as an inflection point, and the "zone to beat" for bears.  On Monday, SPX dropped down into that zone, and bulls found support waiting there.  The question bulls and bears both have now is:  "Is the decline over?"  Today I'll attempt to answer that question.

Okay, well, I thought about trying to build suspense here, like they do on TV ("When we come back, the answer to 'Is the decline over?'"), but that would require running a few commercials and you don't have that kind of time, so let's get right to it.  The answer is:  "Probably not."

For evidence, I submit Exhibit A:  NDX.  The basic issue discussed on the chart also applies to several other charts as well.

Exhibit B is even simpler, and is shown via the SPX chart.  Keep in mind that SPX has the same options for a complex bullish (then bearish) expanded flat as NDX, using equivalent highs/lows -- but I consider the expanded flat an underdog:

In conclusion, although bulls are staging a convincing rally off the first SPX support zone, the current available evidence suggests that this bounce is probably a simple countertrend rally.  As noted, next resistance is near 2050 SPX and the red trend line, so we'll see how the market reacts there and watch for impulsive turns.  The expanded flat shown on NDX is technically possible, but probably a slight underdog at the moment -- nevertheless, bears probably don't want to be shorting willy-nilly (symbol: WLNL) into this rally, but should choose their entries carefully and respect their stops.  Trade safe.

SPX and RUT: Equal Time

Last update, we talked about all things bearish, so in this update, we're going to at least take a look at some options for the bulls.

Probably the main thing bothering me about the recent top is that it came on bad news.  Strange as this may sound, I generally don't like "bad news tops."  Bad news tops spark panic selling, and that can lead to "seller's remorse" shortly down the road, when everyone realizes that the world didn't end immediately.   As the old expression says:  "They don't ring a bell at the top."

Don't get me wrong:  I'm still going to proceed under the assumption that this is "bearish until proven otherwise" -- again, I'm just trying to bring some balance to the outlook.  Forewarned is forearmed, as they say.

For one look at a couple potential bull inflection points, here's RUT:

Below is a simple support and resistance chart for SPX, with the note that RSI has not yet confirmed this new price low.  Bears would like to see that happen sooner rather than later:

Finally, one of Friday's charts updated with only the new price action.  Note that bears broke and back-tested the first support zone:

In conclusion, beyond attempting to bring a little balance to the discussion (as I did above), there's nothing much to add to Friday's update.  Trade safe.

SPX Update: Millions of "Leave" Voters Charged with Insider Trading

Yesterday, Britain voted to exit the European Onion (EO), and today the world breathes a sigh of relief.  Or at least those of us who inherently distrust large central banks do.

Some have called this exit vote a "black swan event," as if there was no way anyone could possibly have seen this coming.  Certainly no one could have foreseen the possibility of a rally to retest the all time highs, followed by a sharp decline.  And they most certainly could NOT have anticipated that possibility all the way back in February near the low, could they?  Because, if they did foresee this possibility, well, that would throw a huge wrench in the whole "black swan" theory.  It would actually suggest that the charts LEAD the news.  If you can imagine.

No, surely no one could have foreseen this "unexpected" catastrophe from that far away.  Here's a chart from February that decisively proves nobody could have predicted a retest of the all-time-high, followed by a "black swan" event that crashes the market.

Err, wait a second... what's that black "Bull: C" path doing on there???

Hmm... Maybe the charts DO lead the news, and not vice-versa as the news organizations would like you to believe.  Because, after all, if everyone accepted the premise that the charts lead the news, then what exactly would traders and investors even need the news for..?

Moving on to today's charts, the recent near-term pattern does leave some unanswered questions -- for example, ES (the e-mini S&P futures) actually broke the early June high, which confirmed that the expanded flat pattern I was worried about on Friday was entirely correct.  However, it appears cash isn't going to get the opportunity to break its equivalent high at 2120.  This creates some questions for the wave counts, but rest assured that I'll be trying to answer those question as soon as possible.  In the meantime, I'm going to assume the most straightforward version of the decline, because I really have no choice BUT to assume that, at least until the market shows some sign of bottoming.

The chart below discusses one potential "bull" option which answers some of the questions posed above.  However, even that option likely doesn't find support until the 1900- zone:

It's also time to update the TRAN chart, because I believe this chart may offer some additional clues to the near-term, and to the bigger picture.  Long-time readers will recall that I turned bearish on TRAN within a few points of the top, and this market still appears intermediate bearish:

The SPX 2-hour chart is below:

I'd also like to share something I published in our forum last night, around the time that ES [the e-mini S&P futures] was limit down, because it "bears" repeating:

At the current rate of decline, ES would be at 0 in roughly 20 days. Obviously, that ain't happening... but it's human nature to get carried away by the moment and project the last few hours or days in a linear fashion.  So, point being: Don't let yourself be the guy who gets upset when the market bounces. Be careful when you catch yourself thinking: "Why is it rallying? What changed?" What changed is: nothing. The market is NOT going to zero, THAT'S why it's rallying (in our hypothetical future).  And, even if it was going to zero, it's not going in a straight line.

In conclusion, as I've discussed over the past week, the pending breakdown at 2050 can only be viewed as bearish -- assuming, of course, that cash follows ES' lead and breaks 2050.  For now, despite some ambiguity near the high, we're just going to presume the most bearish straightforward count and try to adjust in real-time if it becomes necessary.  I should note that all of this is predicated on bears sustaining a breakdown at 2050; if 2050 doesn't break, then bears have no confirmation of anything and the expanded flat discussed Friday, Monday, and Wednesday would remain on the table.   Trade safe.

Potential SPX Patterns Remain Diametrically Opposed

The moment the market's been waiting for -- the Brexit vote -- is almost upon us.  Voting closes at 5 pm Eastern time tomorrow, and there will be no exit polling done, so the results will come trickling in as each station counts up its votes.  My exclusive sources have revealed that a special American vote-counting team (from Broward County) is flying to England this morning, and will be on hand to drag things out and frustrate everyone -- IF that becomes necessary.

The charts seem to fit the tension surrounding the upcoming vote, and the bull and bear counts appear to be diametrically opposed in a significant fashion. 

Another short term SPX chart below:

In conclusion, there's no change from the prior two updates, as the world awaits England's vote.  Trade safe.