SPX Update: Awaiting a Break of Trading Range

In Wednesday's update, I discussed that it was finally time for bears to begin behaving cautiously:

The bulls do have several potential patterns in play here -- one possibility would be for the entire move off the all-time high to be a fourth wave triangle.  If we followed that pattern to its logical conclusion, then it's technically possible for 2144 to mark the bottom of wave e of that triangle, and head straight up to new ATH's from here.  I'm not favoring that, but it pays to be aware of such things, especially at inflection points (one of which was just reached).

In conclusion, I'm still inclined to favor the bears heading forward, but bulls do have near-term options to add additional confusion to the pattern, and larger options for a more meaningful rally.  Hence, yesterday's target capture signaled a reasonable inflection point for bears to begin behaving at least somewhat cautiously.

Since then, BKX (banking index) has made a new high for this move, and that calls for added bear caution.  Thus, today's update will chart both a bull and a bear count.

We'll start with a chart of the bull count, since I have only discussed this verbally in prior updates.  Please note the typo, wherein the target should be 2234-45 (obviously).

The bear count is unchanged.

In conclusion, although SPX has remained range-bound for quite a while, and although we closed smack in the middle of that range yesterday, my gut tells me that we may finally be close to breaking the range. 

As mentioned, BKX made a new high yesterday, and that at least calls for bears to continue to maintain the cautious stance recommended on Wednesday, until such time as the market can sustain a break of the red trend line shown on the chart above and, more importantly, break down from the trading range.  Whether one is a bull or a bear, whenever dealing with an ongoing range like this, one should choose all entries and exits very carefully.  Trading ranges can be unforgiving of sloppy entries, and even one bad entry can throw off your entire rhythm and cause all subsequent trades to be unbalanced, leading undisciplined traders to be whipsawed out numerous times.  Trade safe.

SPX Update: First Downside Target Captured

I'm exhausted to the point of... uh, exhaustion this morning, so I'm going to let the charts do all the talking.

First up is the SPX 5-minute:

SPX 1-minute:

Both of those charts talk about the potential for at least a near-term rally from here, so let's look at the most immediately bearish potential for comparison:

Now, none of the charts above discuss the bull option in any detail, but I have mentioned at least one such option briefly over the past several weeks.  The bulls do have several potential patterns in play here -- one possibility would be for the entire move off the all-time high to be a fourth wave triangle.  If we followed that pattern to its logical conclusion, then it's technically possible for 2144 to mark the bottom of wave e of that triangle, and head straight up to new ATH's from here.  I'm not favoring that, but it pays to be aware of such things, especially at inflection points (one of which was just reached).

In conclusion, I'm still inclined to favor the bears heading forward, but bulls do have near-term options to add additional confusion to the pattern, and larger options for a more meaningful rally.  Hence, yesterday's target capture signaled a reasonable inflection point for bears to begin behaving at least somewhat cautiously.  Trade safe.

SPX Update: 50 Ways to Leave Your Lover...

...and 20 ways to say the same thing over and over.  Because, since last update, there's been (as the businessman said to the beggar):  "No change." 

Another view:

Bigger picture:

In conclusion, still no change from within this noise zone: Unless we break out cleanly, I'm still inclined to think bounces should be sold, in a "not trading advice" sort of way.  Trade safe.

SPX and NYA Updates: SPX Reverses from Target Zone

Last update was short, sweet, and to the point -- and anticipated that the S&P 500 (SPX) could rally to, then reverse from, the 2166-2172.50 zone.  SPX exceeded that target by 17/100ths of a point before dropping rather strongly.  Note the intraday gaps during yesterday's decline, suggesting that liquidity is currently thin.

Stepping back a bit to the hourly chart, it's interesting how frequently SPX has reacted to the red median channel line drawn on this chart on September 8:

From an intermediate perspective, I am continuing to treat this as the early stages of a downtrend, however to only consider one side of the trade is often a fool's errand, so I have included some caveats on the chart below.  We can see that bears do indeed have some work to do in order to solidify this "spec count."

Finally, the NYSE Composite Index (NYA) is, in my opinion, one of the best representations of the true broad market (as opposed to SPX, which only covers large cap stocks).  Here again, I have made some notes regarding the bull case:

In conclusion, I suggested shorting the market on September 8, and have not seen anything yet to convince me that the decline we've had since has ended yet.  As I've noted in several prior updates, this is hardly a "slam dunk" for bears, and there's certainly some ambiguity to this pattern -- but the pattern does still seem to give bears a slight edge for the time being.

On an unrelated note, long-time readers already know I believe that "news is noise" when it comes to the market, and that the charts tend to lead the news, not the other way around.  Thus, I feel compelled to comment regarding an article I recently read in a major publication, as follows:

Since I didn't watch the Presidential debate, I was skimming through a couple articles to find out how it went, when I came across this statement in an article that was published a couple days ago:

"Sensing that Clinton may have edged it, global markets traded higher."

That statement stands alone as the sole "market commentary" in the article.

I find this statement offensive, not in any emotional sense -- because I don't really care much about this election -- but in an intellectual sense. It bugs me because it insults the intelligence of the reader, and it plants bad seeds for those readers who do not understand equities markets. The entire statement amounts to nothing more than arrogant presumption -- yet that arrogance is cloaked and presented as a presupposition so indisputable that no further discussion is even needed. Meanwhile:

1. It presumes that the Presidential debates actually impact the equities market in the first place.
2. And not only the U.S. market, mind you: GLOBAL markets.
3. It presumes that Clinton won the debate.
4. It presumes that global markets could "sense" this victory.
5. And since they traded higher, it also presumes that global markets prefer Clinton.

That is an entire book's-worth of debatable assumptions -- yet they are casually dropped-in as indisputable facts via one little sentence. This is the type of crowd-impacting (and subtly brainwashing) bias that reporters throw in (consciously or otherwise) that just gets my goat as a thinking person.

I'd love to see how they explain the market's behavior today. I mean, we haven't had any more debates, have we? So the same logic must still apply: "After thinking a little harder about Clinton's debate victory, SPX gapped down several points on an intraday basis. Or maybe the debate and the market's little rally were totally unrelated to each other and are not a particularly good example of causation."

But I'm guessing that's not forthcoming as a retraction and correction. 

Trade safe.

SPX Update: No Material Change

No material change since last update, except to note that, as the prior update could only speculate would happen, the decline from 2179.99 does appear reasonably impulsive at micro degree.  Although I have outlined 2180 as the "level to beat" on the chart below, as also noted in prior updates, the all-time-high is more important from a technical perspective. 

Note that 2/B could potentially be complete at yesterday's high, so any additional rally is not guaranteed.

In conclusion, there's no change from the last few updates, and I am continuing to treat bounces as sell opportunities -- please refer back to Monday's update for the intermediate charts.  Albeit this is not an "ultra-high-percentage" bear pattern (as some of them are; protect yourself accordingly), but short still appears to be the higher-odds play for the time being.  Trade safe.

SPX Intermediate Term Update

Last update focused on the short term, and gave targets of 2170 and 2163 for SPX, both of which were captured, and both of which generated reactions from the market.  The third near-term target of 2156 could be reached at today's open. 

We're also going to look at some intermediate options today.

First is the updated near-term chart.  A new low at today's open will give this decline a reasonably-impulsive appearance, which would suggest at least a near-term trend change. 

Intermediate-term, I haven't written off the idea that the rally from 1991 SPX has all been part of a larger, ongoing corrective wave.  But this is pretty far ahead of the game -- heck, maybe the recent lows will hold and we'll rally straight on to new highs from here.  Needless to say (or: as said in depth last update), bears should be very cautious if SPX makes a new all-time high.

Finally, a few caveats for bears:

In conclusion, a new low at today's open will give the decline from 2179.99 a reasonably impulsive appearance, and suggest that the decline from said level will be at least two legs.  It also makes me even more inclined to believe that the bounce from 2119 was corrective (thus not the start of anything meaningful, and destined to be broken).  The bull option is that the bounce from 2119 is corrective, but is part of a triangle or similar.  Nevertheless, unless and until SPX claims at least 2180 (for the cautious) and the all-time-high (for the less cautious), I'm inclined to believe bounces should continue to be sold, and inclined to believe there could be a decent decline pending.  Trade safe.

SPX and NYA Updates, and the Hidden Psychological Pressures That Can Destroy Our Trades

We're going to get right into the charts, but a bit later in this article, I'll share some thoughts regarding certain hidden psychological pressures that can absolutely devastate our trading ability.

Yesterday saw SPX capture my near-term breakout target, and that target has, so far, stalled the rally:

Near-term, a decline south of 2172 appears likely:

Looking at things in a more bullish light, bears do have to continue to respect the successful back-test of support, which I discussed last Monday:

From an intermediate perspective, one thing is clear:  If SPX can sustain a breakout over the all-time-high, then bears may need to stand aside and wait for greener pastures.  Could a breakout be a head-fake and whipsaw directly?  Absolutely.  But there are good opportunities, and there are "got lucky" opportunities (defined as: "any trade we enter based on hope and not discipline.").  If we risk too much capital on the "got lucky" opportunities, we may hit some winners here and there, but we'll ultimately lose more than we win.  And then we'll have minimal capital left over to take advantage of  high-probability opportunities where the market is all but screaming its next move in advance.

An old adage in trading is "you can't go broke taking a profit" -- to which I'd add another seemingly-obvious statement:  "You can't go broke protecting your capital."  Always remember that you don't need to be in a trade.  Over-trading leads to more over-trading, and it can quickly spiral out of control, due to human nature.  It can start with just few "hope" trades that turn into losers.  Taking "hope" trades already shows your emotions were in the wrong place -- and losing pushes your emotions even further out of whack.  Think of it this way:  If you were lacking discipline when you had MORE capital, your discipline will be even worse when you're trying to regain that lost capital and get back to even. 

Before you know it, you're throwing money around the market like a madman, chasing every move as if your life depended on it.  And then one day you wake up and your money is gone.  Wait, how did that happen so fast?  And you scratch your head and look back at your insanity, and wonder who the heck was trading that money -- couldn't have been YOU, right?  After all, you're not that irrational.  Are you?

Yes, you are.  We all have that in us, unfortunately.  Fortunes have been lost this way, and will be lost again.  And it all starts with a few, seemingly innocuous, temptations to abandon discipline. 

If any of this resonates, and you've been trading without discipline for even a short time (like almost all vices, it usually starts small -- it's the "I'll just have one cigarette" syndrome; before you know it, you're chain-smoking two packs a day), then my advice is:  Put the computer down.  Back away slowly.  And go get your head right before it's too late. 

"But I can't," you say, "I've got to get my money back first!"  Right there, that thinking tells you something extremely important:  It tells you that you haven't accepted your losses at an emotional level yet.  And if you haven't emotionally accepted your losses, you are NOT thinking clearly.  You're not operating from a rational framework, or from any basis in reality.  Your decision-making process has been sabotaged by your emotions; and we simply cannot trade well in such a frame of mind.

I speak from personal experience, of course.  I imagine most traders have been there, at one time or another (although I also imagine that not all will admit it openly).

I got off on a tangent here, but my point, and my advice, is two-fold: 

1.  Learn how to accept a loss.  I mean REALLY accept it.  Let it go, and move on to the next trade with a clean slate.  I believe this is more important than is usually talked about, because unaccepted losses create psychological pressures that operate outside our sphere of awareness, and that makes those psychological forces exceptionally dangerous to us.  We can't fight what we can't see.  Essentially, when we don't "accept" a loss, we are denying reality.  The resultant unconscious psychological pressure comes from trying to reconcile the reality that we pretend exists with reality as it actually is -- and we thus begin seeking ways to reconcile the two realities and bring them into alignment.  Obviously, this means we begin trying to manipulate actual reality to come into line with our pretend reality (never the other way around -- if we preferred objective reality, we'd have no reason to pretend it was otherwise in the first place!). 

So, denial of even the smallest loss causes us to lose at least some amount of touch with reality; and how can we possibly make rational decisions when we're not operating from a basis in reality?  Worse, the hidden agenda in denial causes us to attempt to impose our subjective wills upon an entity that does not change one iota in respond to willpower (that entity being the market). 

So, without being consciously aware of what we're doing, we begin operating from a framework that guarantees our destruction.  The unseen and irrational internal pressures of denial cause us to do things such as hold onto our losers too long, and to jump compulsively into high-risk trades.  Before we know it, the small losses turn into big losses.  And if you couldn't emotionally accept the small loss, how on earth are you going to come to terms with a bigger loss?  Obviously, you probably won't.  So, in the long run, the emotional fallout of denial will actually turn small losses into total losses when taken to its logical conclusion -- which the market will always force us to do, eventually.  At that point, finally, when the money's all gone, there is no room left for denial.  Reality forces its way through in the end.  The moral being:  We are always, inevitably, left with no choice but to accept our losses, one way or another.  Why not accept them early, and come to terms with them while the losses are still manageable?  Denying you have a broken arm doesn't make the broken arm go away, it just delays the amount of time it takes you to see a doctor -- and the consequences of that delay can be severe.

2.  The preceding death spiral starts with a few small undisciplined trades.  If not corrected IMMEDIATELY, lack of discipline begets more lack of discipline.  Like that "just one cigarette" after you've quit... it leads to another, then another... until finally, you completely lose sight of what you were trying to accomplish.  You no longer fight the urge.  And when you no longer even bother fighting the individual wars, can losing the entire battle be far behind?

Anyway, in conclusion, I don't think the importance of learning the skill of emotional acceptance in trading is discussed often enough.  In my opinion, it may be one of the most important distinctions between a winning trading career and a losing trading career.  Trade safe.