SPX, RUT, and INDU: Caution Levels to Watch

Last update discussed the potential for a fourth wave correction and fifth wave unwind, and yesterday's decline does fit the bill for a potential fourth wave.  As long as that low holds, the picture remains bullish.  If that low fails prior to SPX breaking over 2399, then there is arguable good reason for bulls to be cautious.  In other words, if you're ridden the rally this far, then that might be a good stop zone for at least partial profits.  Toward the end of the update, we'll take a closer look at the bear option if yesterday's low fails directly.

On the bigger picture chart, we've reached the inflection zone where the market will sort the bulls from the bears, at least for the near-term:

RUT has finally captured its 1420 target from November.  I never really doubted that it would, the question was always one of "now or later?"  That question still has some relevance, in the sense that if RUT were to reverse strongly immediately, then we'd have to consider the potential of an increasingly complex flat.  The upshot for bulls would be that it's pretty hard to view the rally from 1335 to 1425 as anything other than a three-wave form right now, so we could be pretty confident of a solid buy op at lower prices (again, IF we formed the expanded flat).

If this current wave is simply blue 5, then it probably still needs a micro 4th and 5th unwind:

Now for a closer look at the bear option, for perspective on why an immediate breakdown at yesterday's low would at least call for a degree of caution.  INDU and SPX are in basically the same count at intermediate degree, so they would be expected to track closely in a relative sense.

In conclusion, if yesterday's low fails directly, then some degree of caution would be called for.  The harder pattern would be a rally up to retest the 2398 high, and THEN a break of yesterday's low, as that would have potential to be a flat -- so, as always, the idea of "sustained trade" below a key level becomes meaningful.  ("Sustained trade" is not a short-lived break that fails to run anywhere and whipsaws, it is more when a key level is broken and then the zone around the key level begins to function as resistance or support.)  If yesterday's low holds, then the near-term will remain bullish.  Trade safe.

RUT and SPX: First Upside Targets Captured

SPX captured its first upside targets yesterday, and the rally looks like it probably has farther to run, although a fourth wave pause might be appropriate here:

No change to the big picture since 2016:

RUT's break of the prior high is significant from a technical perspective, and adds confirmation to the bigger picture bull case:

In conclusion, everything looks on track, although bear 2 isn't entirely dead yet, it does look increasingly less likely.  Trade safe.

SPX Update: Finally

Sometimes you just feel like breathing a huge sigh of relief after a choppy market like we've had recently.  Since March 29, I have leaned bullish against 2322 SPX -- and, particularly over the past couple weeks, the market has done its best to try to trick me out of that stance.  I certainly was not "pounding the desk" bullish, but I have beat the drum repeatedly that 2322 was the key level that would turn things.  So, while I was tempted at several points to shift to a neutral stance, or even to lean bearish, I've continued to repeat that as long as 2322 held, I would maintain my bullish lean (the number of "no change" blog posts over the past few weeks has been mind-numbing).   

Today, all that is finally going to pay off.

Now, what I want readers to understand is that the more we rally, the more cautious I will become.  Human nature tends to work the opposite of the market, which is why so many participants lose money:  People tend to be bearish near lows, and bullish near highs.  As I mentioned on April 19:

Now, I'm absolutely not trying to scare bulls off from playing here, because the best profits are usually made when things look scary.

Most people were bearish near the low, but will now grow bullish as we rally.  While I'm not going to grow bearish as we rally (until the market gives me a good sign to do so), I am going to grow increasingly cautious about longs.  There's an inflection point in the 2380-2400 zone that may or may not present a challenge to the rally.  We'll take that as it comes, but the good risk/reward for bulls was near the 2322 pivot.

Near-term it appears the market has likely formed a bull nest of first and second waves:

   
No change to the intermediate picture, but keep in mind that the black "or c?" represents an inflection zone, where things could shift from bullish to bearish, or -- as I mentioned last update -- could shift into the sideways chop that I'd noted would become a possibility as we rallied toward the black c label.

In conclusion, it appears the near-term bull count will be vindicated, and I hope that readers are/were able to profit from it -- or at the very least, that it gave bears pause and protected them from big losses.  In any case, the intermediate picture does call for good use of stops to lock-in profits as we rally into the inflection zone.  From there, we'll examine the picture in real-time as it unfolds.  Trade safe.

SPX and RUT Updates

In the prior update, I said that I felt SPX needed at least one more near-term leg up, and published some short-term upside targets for SPX.  Target 1 was captured yesterday, and SPX came within two-thirds of a point of target 2.  The pattern suggests that at least a bit more upside is probably called for, but the way this market has behaved lately (or misbehaved, as the case may be), I'm not holding my breath on anything right now.

RUT held its key support zone after the last RUT update, and has rallied admirably since:

SPX seems to be forming a classic technical triangle.  I do not believe this counts well as a true Elliott Wave triangle, but that's not required for it to behave according to classic TA rules, so it's worth paying attention to see how the market responds to the triangle boundaries.  In the event SPX rallies thought the upper dashed red line, then keep an eye on the blue line as a potential "stealth" resistance zone.  This would roughly correspond to the red line on the RUT chart above.

Finally, the bigger picture chart is still unchanged, though I have added the possibility for the current rally to be a larger c wave, as opposed to part of wave 3, which would forestall an immediate bullish resolution, and mean lots more grinding, range-bound movement over the foreseeable future.

In conclusion, there's still no real change, but I should mention that INDU broke its prior low recently.  I looked back through the chart, and INDU did a similar thing in October/November, which ended up not meaning much, so I'm still holding SPX as the more important market for the time being, and still viewing 2322 as the key level -- although, as noted, I have given more consideration to the potential for continued extended sideways chop.  Trade safe.

SPX and BKX: If I'm Being Redundant, Then Please Allow Me to Repeat Myself...

SPX is still holding 2322, so there's still no change to the outlook, as summed up (yet again!) in the last update:

I have given the benefit of the doubt to that low [2322 SPX] in light of the prior strong uptrend, but if SPX sustains trade beneath that level, then we'll have to at least consider the potential that the wave we've seen to this point could be a very bearish nest of 1's and 2's.  So, what I've been saying for a while remains true:  All bull bets have to be off below that level.

If SPX holds that zone, then it's a moot point, of course.  But we're close enough to it now that it needs to be kept firmly in mind.

For the near-term moment, it looks to me like SPX wants to continue rallying with at least one more wave up, but in order to confirm that instinct, the next level bulls need to claim is 2349.  Notice yesterday's perfect back-test of the upper trend line on the aforementioned black falling wedge/diagonal:

Now, I'm absolutely not trying to scare bulls off from playing here, because the best profits are usually made when things look scary.  I am mainly reiterating my warnings in case a breakdown materializes in-between updates -- which is why I keep driving home the point that 2322 appears to be an important level.  Of course, a breakdown of 2322 would not guarantee bearish follow-through, and the market could always break that level and whipsaw immediately -- but we always need to be aware of the pattern's potential in order to make educated decisions.

No change yet to the bigger picture, of course:

In conclusion, the market's still in the same basic position it's been for all the recent updates:  as long as 2322 holds, I will continue to give the prior uptrend the benefit of the doubt and lean very slightly bullish.  But if SPX sustains a breakdown at that level, then there is significant bearish potential energy in this pattern.  Trade safe.

SPX and RUT: Don't Count Your Chickens Until the Cows Come Home to Roost

Well, I'm not thrilled with this market currently.  The issue I've had since the beginning remains, in the form of the 2322 low in SPX, which could be interpreted as a B-wave (meaning it would fail).  I have given the benefit of the doubt to that low in light of the prior strong uptrend, but if SPX sustains trade beneath that level, then we'll have to at least consider the potential that the wave we've seen to this point could be a very bearish nest of 1's and 2's.  So, what I've been saying for a while remains true:  All bull bets have to be off below that level.

If SPX holds that zone, then it's a moot point, of course.  But we're close enough to it now that it needs to be kept firmly in mind.

Below, I've used a more basic classic technical analysis chart of the Russell 2000 (RUT) to help illustrate the point:

Near-term, SPX cracked the 2337 level, which wasn't my ideal scenario, but (as noted on Wednesday) this in itself doesn't entirely kill the bull case... yet.  It bothers me a bit that this pattern doesn't really work as an ending diagonal in terms of the trend lines, but it does work in terms of the abc structures of the declines.  Of course, if those are bearish nests of first and second waves instead of abc's, then bulls could encounter serious trouble.  The 2322 zone continues to be the first dividing line.

Bigger picture, given the current wave structure, an immediate and sustained breakdown could prove the "or Bull 4" label placement to be too conservative (in other words, SPX could head lower than that zone).

In conclusion, bulls can maintain hope for the moment, but a sustained breakdown at 2322 would have to be viewed as, potentially, a very bearish development.  Trade safe.

SPX Update: So far, so good...

SPX finally broke from its short-term range, and headed down to the slightly-preferred "c of 2" zone on the near-term chart I've published in the past couple updates.  It promptly reversed higher and rallied 16 points, making for at least a solid short-term trade for anyone who bought that zone.  This was how I wanted to see the market behave if the preferred bull count is correct, so there's really not a whole lot to add, although I've added some targets and some caveats in the description on the near-term chart (below):

The in-between option that I haven't really mentioned is for the current rally to be wave C (with blue 1 being A, and yesterday's low being B) of a decent-sized ABC correction, which would likely peak in the vicinity of the first target zone (2385 +/-).  Nervous bulls might consider capturing at least partial profits if we reach that zone.

Bigger picture, there's no change so far.  If SPX were to sustain a break of 2322, then we'd give weight to the black "or Bull 4" option:

In conclusion, the slightly-preferred bullish count is performing as one would want it to, so there's no reason to add additional speculation to the outlook just yet -- but it's still a tight call, so I'm hardly advocating complacency.  If SPX breaks yesterday's low, it gets a bit trickier for bulls, although they still have the ending diagonal option until 2322 fails.  As long as yesterday's low holds, then the next meaningful upside target is in the 2385 zone.  Keep in mind that if c of 2 bottomed yesterday, then we are beginning a third wave rally, so we'd expect to see some strength from the market, beginning reasonably soon.  Trade safe.