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Wednesday, March 8, 2017

SPX and RUT Updates

Last update, I stated that I was inclined to think we'd see further downside, which has since happened.  Although we're in the zone of the first "red 4" label on the IT SPX chart, it's not clear to me whether or not the downside is complete at larger time frames, and the near-term pattern has turned into a choppy mess.

I would at least note that this is being counted as a fourth wave, and confusing patterns are the norm for fourths -- so don't be surprised if this chop continues for a while.  For example, we could see a near-term rally followed by another leg down, and the market could thus extend the move sideways/down for even several weeks if it wants to.  I can't predict that from the market's current position, but that potential needs to be kept in mind.  Since we tend to "want" the market to move in a more linear fashion, it's human nature to anticipate quick resolution -- especially after the fast linear rally we just came out of.  I'm simply warning that "quick resolution" does not have to be the case here.

SPX reached the zone near the first red 4 from last update, so it's always possible that's it for the downside, but I do think it's prudent to at least be aware of the potential for a confusing chop zone to develop.  



RUT looks like a B-wave into the recent 1414 high, which would make the current decline a corrective C-wave.  RUT has already reached its minimum downside expectations, and I've noted the red trend line as the next zone to watch if the downside continues:


In conclusion, in the last update, more downside looked likely, and we got that -- but now it's currently unclear if that will be all she wrote for the entire correction, or if it's going to become more complex by adding another wave up and another wave down.  Hopefully the next few sessions will help answer that question.  Trade safe.

Monday, March 6, 2017

SPX Update: The Market as a Quantum Probability

Quantum physics tells us that particles don't exist prior to observation.  Instead what exists is a wave of probabilities as to where the particle might be found (note that this is not a wave of probabilities as to where the particle actually "is" -- the particle simply does not exist in any real sense until you observe it!)

Sometimes I think of the market in similar terms, as a "wave of probabilities."  In a way, that's all it can ever be.  Nothing is guaranteed -- although some patterns do seem to exhibit a form of causal determinism (often, once a certain portion of a fractal forms, the market seems compelled to complete that fractal).  The challenge is that the market can sometimes go for decent stretches without forming such deterministic patterns in the first place.  In those instances when no deterministic pattern is unfolding (at least insofar as this: even if the entire market IS causally determined, we can't always pinpoint the prior move (the "cause") -- so from a practical standpoint, we would still consider those patterns nondeterministic), which constitute the majority of market moves, then we are dealing solely with probabilities.

I think one of the errors folks, especially less experienced traders, sometimes make when attempting to apply Elliott Wave (and other systems) is in thinking that EVERY pattern is, or "should be," a clear manifestation of causal determinism -- so they believe they know exactly what's coming next.  If one takes that view, then it leads to overtrading, over-commitment of capital, and/or frustration when things aren't clear-cut.  It's always best to remember to allow for contingent possibilities, and to thus view the market more in a quantum framework than in a Newtonian framework. 

Short-term, the probabilities seem to favor at least one more leg down.  Though my first inclination is that we'll follow the blue path and bounce around a bit first, it is technically possible that b completed on Friday.



Bigger picture, the probabilities still seem to favor that the bull market isn't over yet:



In conclusion, there was little movement on Friday, so there's no material change from the prior update.  I'm still inclined to think we'll see another leg down, but this rally has surprised me before.  Trade safe.

Friday, March 3, 2017

SPX and BKX: November Targets Captured


Well, November's 2400 target was finally captured, good for about 200 points of profit.  Amazingly, it was captured to the point -- and shortly thereafter, SPX suddenly dropped like a rock.  Bears undoubtedly want to know if we're "there" yet, and the chances are that no, we're probably not.  However, a decent near-term correction can't be ruled out.  I'll let the charts take it from here:


A closer look at SPX:


And an update to BKX, which has also captured its first November target zone.  Here again, we can see that the waveform would look better with at least one more 4 and 5... possibly more (from a larger perspective):


In conclusion, SPX and BKX have both captured intermediate target zones, and the market reacted.  We could see a near-term correction now, but odds are good that the bull market is still underway in the bigger picture.  That said, we'll keep an open mind to all options for the moment, and do our best to react appropriately if the market dictates that we need to.  Trade safe.

Wednesday, March 1, 2017

SPX Update: Rally Continues on Important Hair Ban


No material change from last update, except to add a few notes:  It appears wave (4) was indeed complete, and the current wave does seem to be subdividing.  The near-term chart below contains the details, along with the addition of Target 2:




Whoops, wrong chart!  Here's the chart I thought I was posting:


Long-term, there's still no change, which, although boring, is a good thing because it means there have been no big surprises for my readers:



In conclusion, it appears the market rally will continue due to the recent "Nice Hair" ban, which is as good an explanation as any that the major media outlets ever offer.  I would have said it's rallying because we're in a third wave and that's what third waves do... but what do I know.  In any case, for Pete's sake, do something to screw up your hair before you get hauled off to jail.  Trade safe.

Monday, February 27, 2017

SPX Update: Market Pulls a Little "Gotcha!"


We just saw an interesting near-term pattern unfold, one which often fools both novice and experienced Elliotticians alike.  What I believe we just saw is shown below, and it often confuses people because the fifth wave did not exceed the b-wave highs, although it did exceed the third wave high, which is all it's "required" to do:



The question is whether blue (4) is complete yet or not.  If it is, then we're likely only about half-way through blue (5), so we would be looking at 2379-83 as the next target.  If the rally stalls here and reverses, then blue (4) may become more complex.  In the event 2353 fails, then we'd watch the 2343-48 zone for a potential (4) bottom.  Do be aware that since this is a fourth wave at higher degree, it can run lower than that zone if it wants, and the invalidation levels for a fourth wave is way down near 2300.

I've added a few more numbers to the long-term chart, just on the most recent subdivision of the current rally, mainly for perspective.  Lately, waves have been acting a bit funny, so I'm not saying this is "fer sure THE count, man!" -- it's merely the most obvious way to count the waves currently, so it's more a "working" count for perspective purposes.



In conclusion, we don't have any glaring wave patterns indicating a reversal yet, and the longer-term trend remains up.  We could certainly see a more complex fourth wave unfold, however -- but that's not predictable at present, so we'll simply have to react in real-time if it occurs.  Trade safe.

Thursday, February 23, 2017

SPX and RUT and Some Random Thoughts for Bears


It goes without saying that markets are out of our direct personal control.  Our only way to profit from them is thus to determine which direction they're going (or about to go, if nearing a reversal) and align ourselves with that.  In a way, our trading success can be a direct reflection of our ability to "go with the flow."

This may be one reason that bears have such a hard time accepting bull markets.  I believe that bears, by nature, are rebels.  After all, they've rejected the "everything is awesome" paradigm and the basic Keynesian ideal that consumption is the American Way, so they're already further out to the fringes than the average American (many of whom don't even know what short-selling is, much less attempt it).

Bears realize they're not part of the majority, and I think they like it that way -- but the emotional attachment to being, as Yogi Bear would say, "smarter than the average bull" can cause them to instinctively want to buck any popular trend that isn't "down."  The problem is that emotional attachments, especially to things like our fundamental belief systems, get taken up and carried by the ego.  And that can lead to a sort of dogmatic approach to things.  Basically, once the ego gets involved in anything, there's going to be trouble.  At least, that's my belief.  The ego is unavoidably responsible for mediating certain things in this life, but it's often a horrible manager and, if unchecked, it quickly turns into a brutal and tyrannical dictator.

So, if you're of the bearish persuasion and have struggled with this rally, then it might be worth examining whether you've been taking action based on the market's prevailing trend, or on some need to be smarter than the market and, in a way, attempting to beat the odds.  If it is the latter, then that will not be readily apparent to you.  That's how the ego gets away with stuff -- since it manages our perceptions, it is fully capable of hiding whatever it wants, including our true motivations, for long periods of time. 

And of course even CONSIDERING such a thought as the one posted above will be heartily distasteful to the ego, so the knee-jerk reaction will be, "No way!  Not me.  Not at all!  Definitely not."  And then, even if it ultimately convicts itself, the ego will immediately begin searching for someone or something else to blame.  If the ego is allowed to get away with such tactics, we'll learn absolutely nothing from our mistakes and will keep repeating them, literally for the rest of our lives -- until such a time as we do finally learn.  Nobody said life was easy.

Don't know if that's of any value to anyone -- just a few random thoughts I had today.

So, on the bright side for bears, the Dow's recent streak of 9 record closes can be viewed as training in "going with the flow," since we've known (or believed we knew, anyway) for some time that the larger trend would remain up for the foreseeable future.  That certainly hasn't stopped people from bucking the trend and attempting to short against it, myself included (though mercifully only once in the past couple weeks, and with a very tight stop of about 2 ES points).



Near-term, we appear to have at least one more leg up to unwind (possibly more, if this wave subdivides):


RUT is also closing in on its upside target from mid-November:


In conclusion, SPX and RUT are both within spitting distance of their November targets, at which point things may actually get a bit more difficult for a while.  Trade safe.

Tuesday, February 21, 2017

SPX Update


I started writing a somewhat detailed economic article this weekend, which I believe makes an important point -- and I had hoped to have it ready for today, but it's going to take more than a few sittings to finish it...  but keep an eye out for it over the upcoming days.

Accordingly, much like a wooden pencil that's been sharpened too often, today's article will be short and to the point.  (Or: "much like an overly-blunt Hobbit..." -- ?)

The big picture is still unchanged, of course:


Regarding the near-term, last update's chart showed that a retest of 2338 was expected to be bought, and then followed by a rally to at least 2449-51, which could represent a b-wave or, alternately, part of wave 5.  There were some questions from readers as to how to play that, and from my perspective, the opening low on Friday was a clear buy.  Here's why:  If the b-wave rally was correct, then buying near 2339 represented a trade with roughly 1:10 risk/reward ratio (approximately 1 point of risk vs. an expectation of 10 points of profit), which is a no-brainer in my book.  If the alternate count was correct, then buying 2339 was essentially buying only a point off the bottom of wave 4.  Either play is a winner, and I would have had to have both the preferred AND the alternate counts wrong for the trade to be a loser -- and, at that, it would have only lost about a point. 

As I said, that type of trade is basically "automatic" to my way of thinking.  But of course, that's NOT trading advice, and before even looking at the market, you should consult your broker, your Magic 8 Ball, and your Uncle Stan.  If you do not have an Uncle Stan, then you should rent or borrow one or more.



In conclusion, the intermediate and long-term trends both remain up for the time being.  Near-term, the market has left its options open, as discussed above.  Trade safe.