SPX and RUT: A Bit More Hope for Bears?

I've been staring at the RUT chart on and off for the past few months, and a couple months ago, I suggested the possibility of an ending diagonal -- but the pattern hasn't quite shaken out properly for the version of the diagonal that I first proposed.  The key issue with this pattern is that it seems to be a series of 3-wave rallies, which is proper for a diagonal, and last night it dawned on me that there's another way to look at this structure that fits the rules for an ending diagonal terminal pattern (below):

The nice thing about this structure is that it also provides an invalidation level at 1442 -- sustained trade north of that level would at least provide the option of a strong rally.  Frankly, that's one of the reasons I suspect this is a diagonal -- because if this is a bull warm-up pattern, then it would be outrageously bullish, and I have a hard time seeing that type of moon-shot from the market's current position. 

This is somewhat akin to the way I felt back in 2015 shortly before the flash-crash -- when many technicians were suggesting a nested third wave rally was about to launch to the moon, but I was calling a top.  We're in a similar position now.

If we compare the RUT pattern above with the preferred count I've been publishing in BKX, then we may have two markets well-aligned for a bearish move:

In conclusion, my instinct for a while has been that the market is undergoing a topping process, and with this fresh look at RUT, there finally seems to be some confirmation from the charts.  If RUT breaks out solidly over 1442, then something more bullish may be afoot, but until then, I will continue to lean bearish.  Trade safe.

SPX Update

Last update warned bears not to get too excited, and specifically warned that the (then-current) prices represented a bad bet for shorts.  Hopefully that saved bears some money, because we've since rallied back almost to the all-time high in SPX -- and some other indices even exceeding their previous highs.

Long-time readers know that occasionally there are times that I feel a pattern is so incredibly unclear as to not even warrant a prediction -- and I would have to say that this is one such time.  A few weeks ago, I mentioned that quite a few markets were in apparent contradiction, and this theme has only continued and intensified.  As a result, the intermediate picture has become increasingly more muddy.  Some markets look like they may even be on the verge of a major bullish breakout, while others look like they could conceivably be completing terminal patterns (some of which would still require additional new highs). 

Because there is nothing approaching a consistent theme across markets, I don't feel like anyone's in a position to say with much certainty which side will emerge victorious.  The amazing thing about trading and charting is that while markets can look like total chaos at times, sometimes things will clarify as quickly as a session or two later, so all I can really advise is patience. 

Just one chart today, because there just isn't anything new worth discussing today.

In conclusion, the market remains in something of a no-man's-land, so the only thing I can advise (in good conscience) at the moment is patience -- though, of course, if you're the daring type, small spec trades with good stops are always an option as well.  Trade safe.

SPX, NDX, BKX: And They Said He Was Crazy

On Thursday, I noted that SPX was in an inflection zone where (5) could complete, and while it pulled a nice (and brief) head-fake over 2441ish, it then reversed immediately into a fast decline.  NDX, for which I provided two inflection points on June 1 (the second price point I had noted turned out to be dead-on), was even more dramatic. 

So... normally at this is the point in the game I'd do a little horn-tooting... and I guess I can be proud of the contrarian NDX call, directly into the teeth of a strong rally (some folks even commented that I was "far off base" on June 1 when I posted this chart -- probably new readers) -- yet it's hard for me to get too excited here, because the picture remains quite fractured and complicated.  To illustrate some reasons why this is so, let's start with the NDX chart, and I'll have some additional discussion afterwards:

 
So, all-in-all, a pretty decent call on June 1, but so what?  Where do we go from here?  Well, the bull count heads to 6300-6400 next.  The bear count could head to 5350ish or beyond.  The problem is, there's no clear victor for this pattern.  I was expecting a correction when 5 completed, and indeed we got one -- but that correction was so sharp, deep, and fast that it's entirely possible it's already over.

Thus the problem is:  How actionable is the current market?  And I'd have to say:  Not very.  To analogize this point, I posted a bit in the forum over the weekend, which I'll reprint here (I have often compared trading to poker, which I used to play quite a lot back in the day -- and while I'm no Doyle Brunson, I virtually always finished in the top 3% in the tourneys I entered):

You know, it has occurred to me that there is another parallel between poker and trading:

In poker, certain hands CAN win, but are very difficult to play. For example, 7-8 suited can win with flush possibilities, but it's hard to play because you could easily be against a higher flush (ace-high, or even 10-high, would beat you). These hands aren't too big a deal in limit games, because if you bet your flush and get raised, then you just check and call down the river and you only lose one (or at worst a couple) more bets if you're beaten.

But in pot-limit or no-limit games, then you have to be awfully sure of your opponents' hands (and/or your opponents) to stay in that hand until the showdown. And that's where your modest hand CAN win, but becomes very difficult to play. Sometimes it's best to muck a potential winning hand, simply because it's not worth losing your whole stack just to learn you had the 2nd best hand.

And that's how trading is too. You can win by trading certain things, but without clear stop levels and/or clear patterns, sometimes it's best to just sit it out and wait for a better hand. I mention this, because in a way, this NDX call (from June 1) was like that. Sure, the 2nd "5?" label was spot-on -- but this was an awful hard pattern to trade with anything but a few bucks in spec money.

Said another way: In both poker and trading, just because you COULD win, that doesn't always mean you should try to -- at least, not with high stakes. Small bets (limit games/small spec positions) are sometimes appropriate.

And that's where we are now.  Due to the b-wave potential at the high, there's no clear bearish call from here.  The bear call was to take a stab back at the second "5?" when we hit that, but even then, there was no warm-up decline (to provide a clear stop level) with a retrace to then short; NDX just dropped like a rock and never looked back.  Because of b-wave potential, it's possible the low is already in.  Yet because of the flash-crash nature, it's difficult to say that for sure, either -- so let's look at some other charts, and see if we can find something that gives us clearer markers.

Indeed, we can find one such marker in SPX, and it appears to be the 2398 (ish) level:

Then there's BKX, which has sometimes been a wonderful leader -- but lately it's been trading with almost zero correlation to anything else (SPX, reality, etc.).  Nevertheless, BKX has followed the path I outlined on May 24 pretty darn well, even though it's taken a little longer than originally shown (I've often warned that I don't do "time" projections, only price projections):

In conclusion, although it's tempting for bears to get super-excited now, the market's true intentions aren't actually clear yet.  The fact that SPX/NDX both turned from their inflection zones certainly gives bears some hope, but that's the extent of it.  Sometimes markets will simply react to inflection zones, and all it shows you is that you accurately identified the inflection zone in advance.  It doesn't necessarily mean that the market will continue its reversal from that zone, though. 

An inflection zone is a decision point for the market -- in this case, it "knew" it would have to keep rallying above that zone, and maybe it wasn't quite ready for that level of commitment just yet.  The market can sometimes act like a fiancée who gets cold feet a week before the wedding, then starts calling airlines for ticket prices to skip town... but then ultimately decides to go through with the whole thing anyway. 

In a nutshell:  SPX and NDX both reversed and dropped, but the time for bear entries was near the inflection zone, and has thus passed for now.  Neither market has overlapped any critical bear levels so far.  And, given where we sit in relation to the peak and trough, that means the current price levels aren't easily actionable.  Veteran Elliotians could watch for small directional impulses and act against the starting points of those impulses, but other than that, this is a spot to "check and call small bets," not a spot to go all-in.  Of course, there will be far more promising actionable zones again in the future -- there always are -- so there's never any need to push a marginal hand.  If you didn't already jump into the pot and sell near the high, then you might want to save your stack for better trades.  Trade safe.

SPX and RUT: Just the Fax, Ma'am

Getting right to the charts, RUT still looks more bearish than bullish.  If bulls could sustain a breakout, that would change, of course.  The chart notes 1426, but the megaphone resistance line is probably more critical:

And SPX is in an inflection zone:

In conclusion, the dashed blue median line above, combined with the potential wave count, does present this as an inflection zone.  If you're bearishly inclined, there is now a fairly clear zone to act against (2441ish).  Trade safe.

SPX, NYA, BKX: 57 Channels and There's Nothing On

On Friday, SPX broke above the previously-discussed 2429 level, which served as fair warning to bears for caution.  At this point, there is still no clear victor in the bull/bear wave count war, so it's best for bears to watch for impulsive declines before taking strong action.  I'll let the charts do the talking from here:

NYA's ABC count shown in the prior update was apparently correct:

And on the ugly side of the coin, we still have BKX lagging severely.  Either BKX is going to start rapidly making up lost bull ground, or something may be amiss under the hood that is not being reflected in the broader market yet.

In conclusion, there are still mixed signals out there, but (as yet) no clear impulsive declines in SPX, so bears need to stay on their toes.  As I wrote on May 26:

...it's a little difficult to envision a decent-sized bull wave underway here, but "difficult to envision" is hardly grounds for declaring it impossible.  It most certainly is possible.

At this point, bears will need to get something going in the reasonably near future to remain in the running.  There are roughly enough waves for a fifth wave (blue "Bear: (5)" on the SPX chart) to complete at any time, but until we see an impulsive decline, bearish thoughts remain speculative.  It will be interesting to see how SPX responds to its recent trend line breakout, and that may be the next signal to watch.  Trade safe.

SPX, BKX, NYA, NDX: Mixed Signals

So the market is still giving off mixed signals, as BKX recently broke its prior swing low, while of course SPX recently made a new all-time high.  RUT has also been underperforming; whle INDU has not broken its prior ATH, nor has NYA.  These markets are going to need to get in sync if the bulls want to stretch this rally much higher, and right now one could be forgiven for thinking the rally may be close to running out of steam for at least a little while.  Let's look at a few charts.

We'll start with SPX, which found support at both of the first two noted support points (though first support then broke after a bounce):

SPX counts well as the famed "WTF" pattern, so I went looking at other markets to see if sense could be made elsewhere.  NYA could, theoretically, count as a complete ABC decline (I've labeled it below as a bullish corrective wave, in order to show how that option would be technically feasible), but it's far from conventional, so it's entirely possible this is simply a portion of an incomplete bearish decline wave. 

About a month ago, I mentioned (on the forum) that NDX looked like it would continue rallying for the foreseeable future -- but now NDX is finally getting into territory where it may be completing five waves of rally:

Meanwhile, BKX has continued to behave like a rebellious child (unsurpringly), and has thus far refused to participate in the mandated "Everything is Awesome!" program.  It's possible that BKX will be selected for "reconditioning," where it will be strapped into a chair in a room with only a single TV screen, and forced to listen to Ben Bernanke talk about the Fed's "Tools" (although he will never use any actual first OR last names to describe the "tools" at the Fed):

In conclusion, the markets are fractured and will need to get on the same page if bulls wish to continue Happy Fun Time.  As it sits now, it still looks like we're closer to a top than to a bottom.  Trade safe.

SPX and INDU: Second Verse, Same as the First...

Friday was an exciting day in the market, if you like days that are great for a round of golf and/or spearfishing.  Virtually nothing happened price-wise, as SPX compressed itself into a tighter and tighter range, apparently in the hopes of vanishing into a singularity of its own creation.  Since then, the only thing that's happened event-wise is that the Fed's Kaplan came out and said that "some correction" in stocks could be healthy (translation: the Fed might start trying to talk the market down).

The Fed does this every so often, in an effort to appear responsible to the average citizen, and so they later have "plausible deniability" when everyone starts complaining about market bubbles. 

"Remember?  We tried to warn investors about that bubble!" the Fed will say, with a completely straight face, "It's not like WE have any control over what people do with our free money!  Sheesh."

So maybe this is part of the precursor to the larger fourth wave we're currently on alert for.  Due to the market's "can't do" attitude on Friday, there's not much to add today except minor updates to the charts.  First up is the intermediate picture:

A few minor additions to the near-term chart:

And a quick INDU chart, mainly because it's interesting that INDU hasn't yet broken its all-time-high.  Technically, this pattern starting at blue 1/a wouldn't be a TRUE abc, but I sometimes prefer such labeling for ease of reader comprehension:

In conclusion, essentially nothing happened on Friday, so there's no change from the prior update, and I'm still more inclined to think the top is probably closer than the bottom -- but there is still no decent-sized impulsive decline on the chart, so it's not impossible for the rally to run a bit longer first.  Trade safe.