SPX and RUT Updates

SPX has continued trading in a very narrow range, but that may nearing resolution.  It's a bit difficult trying to sort out one wave from the next in this tight messy structure, but one possibility is discussed below.  If this count is correct, then we're getting close to a more sizeable correction -- the market in this scenario would simply be unwinding the remaining micro fourth and fifth waves before embarking on a large fourth wave correction at much higher degree.

Another option not shown above is that we're still unwinding red iv -- if that were the case, then the sideways grind would continue for another week or so (let's hope not).

RUT briefly cracked a seemingly-significant technical level, and the pattern here suggests lower prices will come (possibly after a short-lived rally):

In conclusion, SPX may wrapping up its micro fourth and fifth waves.  If that's what's underway, we may see a couple more short-lived head-fakes higher before a larger correction.  If SPX sustains trade south of 2378 more immediately, then we're probably headed to at least 2358 over the short-term.  Trade safe.

RUT Update: A Closer Look at the Intermediate Picture

Since last update, SPX made two quick trips over 2400, but each time failed to hold its gains.  So far, there's no change to the near-term options discussed in the prior update, so today I'm going to focus more on the intermediate options via RUT.

The first chart is unchanged from May 3, but the second chart will have more detail.

Here's a closer, more detailed look at the two leading potentials right now:

In conclusion, there's no change to SPX from the prior update, but I've fleshed out the leading intermediate options via RUT.  The next step for bears in RUT would be to sustain trade south of 1380.  Note there are options for a more complex diagonal than shown, but if such a move unfolds, we'll just have to take that as it comes.  Trade safe.

SPX Update: Why No One Loves Fourth Waves

In Friday's session, bulls did what they needed to for their "next step." So, although another near-term down/up sequence remains possible, the recent move adds more confidence that if there is another immediate down move, it would likely only be the C-wave of a more complex fourth wave, and thus a buy op.  Because one additional thing bulls accomplished Friday was to negate any chance that red wave-a down was a first wave -- so that gives them more of a "all-clear" that more upside is coming, either directly, or after the completion of a more complex fourth.

We're in essentially the same position in the bigger picture, since this is also a fourth/fifth wave sequence, so the position of the market is the same.  One of the reasons fourth waves can be so difficult to trade is because they tend to be complex, while at the same time sometimes giving only the most meager of hints before embarking on another complex move.

In conclusion, the options remain the same as they were last update, with more complex fourth waves possible at multiple degrees, but no real way to predict that without a bit more information from the market.  Trade safe.

SPX and RUT: Oh, the Joy

On May 1, I projected a rally to 2394 to be followed by a reversal lower to break 2382, which could then mark a complete micro 4th wave.  The projection played out well enough (stopped a bit shy of my downside label), but the structure of the entire waveform leaves much to be desired from an analytical standpoint, as it has turned into a very ugly chop zone.  There are essentially two leading potentials right now:

1.  Red wave iv completed at 2379 and it's on to new all time highs in red v (black path on the chart below).
2.  The decline to 2379 was the b-wave of an expanded flat -- which would then see the market reverse (ideally) shy of the all-time high, then decline back to test 2379, then rally back up to test the highs again, then decline AGAIN south of 2379 (blue path below).

While the all-time high can be treated as a stop, the challenge with b-wave rallies is that they can exceed the third wave peak (in this case, red iii) without invalidating the b-wave.  But playing for b-waves in a market like this can be hazardous to one's account -- so, due to the fact that the bull option for this structure is reasonably near-term bullish, though, it would be tempting fate to be short if SPX sustains a breakout over the all-time high.

RUT is interesting, inasmuch as it has now overlapped a previous high, which does hint at the potential for the previous rally to be wave B of 4.  The other option that could fit this pattern, given the position of the current wave within the overall structure, is for the peak at 1425 to mark wave i of an ending diagonal.  So, if RUT breaks over 1425, the diagonal would have to be given the benefit of the doubt (with the possibility for an even more bullish pattern).  Until then, the expanded flat (blue B and C) should be eyed with respect.

In conclusion, the market is still giving mixed signals.  It' possible that SPX red iv (first chart) completed at 2379 and we'll head straight on to new highs, but the wave structure hasn't made that clear.  Now more than ever, it's advisable to play only the edges of the current wave, until it resolves one way or the other.  Trade safe.

SPX and RUT: Bears Gaining Traction?

Last update showed the projected short-term path for SPX, which was expected to rally to 2394, then reverse and head back south of 2382.  While we haven't broken 2382 yet, the market reversed from 2394 perfectly, and has followed the projection well so far.

I'm becoming increasingly concerned that this rally is indeed a larger B-wave (for a more complex larger fourth) and thus that SPX could head toward the 2300 zone.  Bulls need to sustain a breakout over the all-time-high to put themselves in better shape.

 
The bigger picture is thus still up for grabs at the moment.  Note that longer-term, this would still be a fourth wave correction, and thus ultimately bullish.  But near-term, the correction could get a bit scary for bulls, and personally that's not the type of drawdown I'd be willing to take.

I've illustrated the near-term bearish count in more detail on RUT:

In conclusion, I've grown more inclined to think that we'll see a near-term bearish move here, to create a more complex fourth wave.  If bulls can sustain a breakout over the all-time-high in SPX, that would give them more breathing room.  Trade safe.

SPX and INDU: Caution Time for Bulls

I mentioned last week that the closer we got to the all-time-high, the more cautious I would get.  I'm officially shifting to near-term neutral for the moment, because I'm getting mixed signals from the market right now.  While a long term top doesn't look probable yet, I think there's at least a reasonable chance that the larger wave 4 may become more complex, which would take us back below the March lows.

Very near-term, it also appears that Friday's low will fail, so if we rally at the open, it might present an opportunity for bears.

Let's also take another look at the INDU "bear count":

In conclusion, I am very cautious regarding the bull case right now.  I suspect we're going to have at least a further near-term correction, and that could well turn into a larger c-wave (3/c on the INDU chart).  Trade safe.

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.