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Monday, July 3, 2017

INDU and NDX: Fractured Markets -- Again

Today is (normally) a light-volume (pre) holiday session, and traditionally, such days are often bullish.  The simple reason for this is because the large institutions know they can't sell much into a light volume day, because they're liable to tank whatever issues they're selling, so these types of sessions tend to be bullish essentially by default.

In the prior update, I discussed the pattern in NDX and why I felt that pattern made it unlikely that an intermediate bottom was in place.  I've finally got StockCharts up and running again (sort of -- it still deletes my old annotations sometimes, which is incredibly annoying), and that allowed me to peruse my chart book again.  In so doing, I have to acknowledge that while an intermediate bottom looks unlikely for NDX, it's not out of the realm of possibility for certain other indices, such as INDU (below):



INDU is also not nearly as far below its ATH as NDX (or SPX for that matter), so it's certainly possible that INDU will rally over its ATH to complete a fifth wave while NDX corrects in a large expanded flat.


First things first, of course, and both INDU and NDX need to clear the peaks of their prior swing highs before bulls can get too excited.  But that shouldn't matter much to bears, as NDX and SPX both captured their first downside target zones for nice profits, so there's no need to push questionable patterns at the moment -- one can afford patience (and one's account often CANNOT afford impatience), and get back in when things look clean again.

In conclusion, I think one of the things leaning me toward the expanded flat in NDX is the fact that if that's a bear nest instead of an abc decline, then it's quite bearish -- maybe too bearish?  One other possibility that I haven't discussed it that of an ending diagonal C wave, wherein the black "Flat: B" label would be wave i of said diagonal, with the current rally being ii -- in that event, NDX would head lower fairly directly, but not massively lower.  We'll burn that bridge if and when we come to it, though.  As I mentioned last update, an expanded flat isn't really "predictable" ahead of time, but for now (anyway), my instinct, at least, is for the black expanded flat, which would mean we continue to rally for the near-term.  If we pull a steep downward reversal in the coming sessions and form a bearish daily candle, then my instinct is probably incorrect.

I hope everyone has a happy fourth of July -- trade, and be, safe.

Friday, June 30, 2017

SPX and NDX: First Downside Targets Captured -- What Next?


(First off, still having issue with StockCharts, so I updated the most recent charts.)

This market has remained difficult to trade (and predict), so in the last update, I suggested a trading strategy as follows:

At this point, the worst case scenario for anyone who's been trading these charts is that they now have profits to protect.  And there's something to be said for protecting some of those profits in a market environment that has been incredibly hostile to bears for the past 8 years.  For me, I plan on protecting about 50% with trailing stops, while letting the other 50% ride with stops near my entries (for now, anyway).

Using that strategy, one got stopped for a small (but still decent) profit on 50% of NDX shorts (during Wednesday's rally), then captured about 230 points of profit on (most of) the remaining 50% of NDX shorts yesterday when the first downside target zone was captured.  Considering how difficult this market has been, I'm not complaining about how that trade worked out.

The thing is, it may continue to be difficult for a time.  First off, the "good" news:  In all likelihood, there is no intermediate bottom in place yet.  I say this because, in NDX particularly, the recent decline from 5845 is almost-certainly three waves.  Five waves are "required" for a decline in this position to complete the move, not the three we have (this is why we can surmise that the bottom isn't in yet).  Linear thinking leads one to conclude the decline will continue directly, but that's not necessarily the case, as we'll see on the chart below. 

Given how complex this move has been so far, it's entirely possible it intends to get even more complex -- so I've shown that option below, in red:



If NDX instead bounces a bit today and/or Monday, but remains below 5757, then turns and drops through yesterday's low -- well, in that event, then we might see things get nasty immediately.  We'll see how it goes -- the green trend line is first meaningful resistance.

SPX has similar options, and also captured (by a hair) its first downside target zone:



In conclusion, we can say with some degree of confidence that it is unlikely a meaningful bottom is in place yet... however, the market might still have more tricks up its sleeve.  The thing is, it's simply impossible to predict at this point whether the move will become more complex (as shown in red on NDX) or be straightforward -- the best we can do is remain aware of the possibility, and view it as a short op (against the all-time high) if it materializes.  If we keep heading lower directly, then we'd have to at least consider the possibility that the market is building a massive bear nest, which could lead to a breakaway decline on a breakdown at yesterday's low.  Trade safe.

Wednesday, June 28, 2017

SPX, NDX, RUT: Good Problems to Have


Okay, first off, I'm having a ton of trouble with StockCharts tonight, so I'm going to use different software for today's charts because I'm tired of wasting time and my wife is undoubtedly tired of listening to me yell at the computer (hopefully, this is only for this update and things will work on Friday!  The software, not the yelling.).  We'll also look at a chart from Friday's update, sans new price action. 

But first, let's recap the past couple weeks, because it especially helps newer reader to understand my communication style.  (While I'm not above yelling at my computer, I virtually never "yell" in my updates.)

On June 16, I wrote:

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.

On June 21, I wrote:

Equities are in a position where bears can take the wheel if they're so inclined, but no indices have given bearish confirmations just yet.  That said, INDU does look very toppy on a near-term basis, so unless/until bulls can reclaim the ATH there, I'm inclined to lean bearish on even the major indices, at least for the near-term. 

(On our private forums that morning (where I'm often more bold, since I can warn members in real-time if I realize I'm wrong) I added to that comment and told everyone: "this is as good as it gets for bears.")

By Friday, I felt everything was finally coming together, and thus was pretty forthright:

In conclusion, as I've been discussing recently, a number of markets appeared to have been aligning -- and now finally appear to be aligned in a way that makes a bearish move quite possible over the coming sessions.  If RUT, BKX, and NDX have all topped (or nearly so), then there is in fact potential for us to be on the cusp of a fairly significant downdraft.  So as long as bulls don't pull a surprise breakout from these patterns, it makes the most sense to continue to lean bearish and simply "trade what you see" (as they say).

(As a long-time forum member (Dundies) pointed out on our forum, that is about as "hardcore" as I ever get directionally.) 

Then on Monday, I added (regarding SPX):

Price has overlapped the start of the prior breakout, and normally that isn't particularly bullish, so I would probably have to be a seller on any retest of the all-time high.

SPX then presented a perfect entry for anyone who was bearishly inclined as it did indeed retest the all-time high -- before turning and dropping 30+ points.

This has been an incredibly challenging market to chart, because markets have been moving in a very piecemeal fashion.  There have been no "obvious" topping patterns, nor have various markets had the good graces to align and move together for the sake of clarity.  This is evidenced by the way I've had to chart each market quite differently -- calling tops in some (RUT and BKX particularly), while allowing SPX a little room to run even after I first called the BKX/RUT tops.

Forgive me for a bit of horn-tooting, but my worst fear is always steering my readers wrong, so it's been a huge relief for me to watch each individual market top and reverse directly from the specific price zone I'd noted for each individual market.

1.  BKX topped last week directly at the "red resistance zone" I'd highlighted repeatedly;
2.  NDX topped Tuesday in the 2nd price target/reversal zone in Friday's update (5845-56);
3.  RUT reversed yesterday from the price zone I mentioned on June 22 (1420-24), and has remained below the larger "we'll remain bearish below" level since I first published it on June 16;
4.  And when I finally talked about SPX again (last update), it reversed on a the retest of the ATH, where I said I'd have to be a seller.

Considering the diversity of these indices (and the patterns therein), that's some pretty darn fine chart work, if I do say so myself.  Anyone can use mechanical system to identify things like "Hindenburg Omens," but locating specific price reversal zones on four completely different markets, and hitting all four of them, is something else entirely.

At this point, the worst case scenario for anyone who's been trading these charts is that they now have profits to protect.  And there's something to be said for protecting some of those profits in a market environment that has been incredibly hostile to bears for the past 8 years.  For me, I plan on protecting about 50% with trailing stops, while letting the other 50% ride with stops near my entries (for now, anyway) -- because as we'll see in a moment, there's potential for this move to be significant, but that's not guaranteed (nothing in the market ever is), so balance is in order.

So, at this point, the questions are:  Where are we now and what next?  Let's start with RUT, and we're going to use Friday's chart, since I can't get StockCharts to update with the current price action.  More comments below the chart:



RUT did manage the trip to 1420-24, and then reversed.  By all indications, RUT appears to be headed to 1375-80 -- the main question is whether it wants to form a more complex sideways grind first.  For now, we'll assume it's headed lower fairly directly, because there are enough waves in place for it to do so.  Bears would like to see it sustain a breakdown at 96 to help confirm the targets, but if it does:  Beyond 75-80 and the next target is the zone near the lower blue boundary of the diagonal.  In a perfect world, it will ultimately head to the targets discussed on June 16, but bears have to stay cautious, especially as (and if) it head lower, because there's no law that says the diagonal can't add another wave, as long as it stays below 1442. 

And, of course, nobody wants to ride drawdown from 1377 to 1442, which is why we protect some of our profits along the way.

NDX is testing its prior low, and has already provided 70+ points of profit for anyone who shorted the second reversal zone (or 50+ points for anyone who shorted the first zone; 60ish for anyone who averaged):



SPX does remain a bit challenging from an intermediate standpoint, because there are two diametrically opposed ways to view the recent all-time high, and I haven't decided which is more appropriate.  Given the bearish look of other indices, it's probably the bear option, but I can't be 100% just yet:



In conclusion, the bearish reversals I predicted happened across the board.  From here, we'd next like to see NDX sustain a breakdown at its prior low to help rule out screwy bull moves (8 years of watching bear patterns blow up gives bears no choice but to stay on their toes at all times).  I can't help but be gun-shy after 8 years of conditioning, and being gun-shy has allowed me to escape many countertrend trades with profits -- but everything does look as promising as it possibly can for bears at this stage.  But the bottom line is, NOBODY should lose a red cent from here -- the only question is whether we'll walk away with a little bit of profit, or a lot.  And that's a good problem to have.  Trade safe.

Monday, June 26, 2017

SPX Update


Friday was an inside day, which means there isn't much to add since that update, but let's take a look at SPX (which we haven't looked at in a while) and discuss a few options:



SPX has remained unclear all week, which is why I haven't been charting it or making predictions for this index, but I'll discuss a couple scenarios here.  First off, this patterns gets a little challenging for bears north of 2442, because that will open up a probable trip to 2445-48 -- with further potential to retest, or even best, the all-time high.  Essentially, there are two main possibilities here, from a wave perspective:

1.  The bear option is that a breakout over 2442 is simply an extended corrective wave, which will stall shy of the all-time high and reverse to make new lows.  Given the pattern leading in, we'd have to anticipate that a breakout would be part of a third wave at micro degree.

2.  The bull option is that the third wave would be nested, and thus at multiple wave degrees.  In other words, the first move to 41 would be wave 1, the second move to 41 would then be a nested wave i -- thus (for the bull option), a breakout over 42 would put SPX in iii of 3, and destined to new all-time highs.

Futures are currently pointing to a breakout open, so this is going to put bears in a difficult spot.

In conclusion, the problem is that SPX still isn't clear on an intermediate basis.  Price has overlapped the start of the prior breakout, and normally that isn't particularly bullish, so I would probably have to be a seller on any retest of the all-time high... but with a tight stop, because any breakout at the ATH puts SPX back into ??? territory.  And it's never worth fighting the tape even a little bit unless you know EXACTLY what you're fighting.  If SPX sustains a breakout over the ATH, it opens up too many options.  I still believe the market is undergoing a topping process -- but as I've said many times before, tops take time, so it's not out of the realm of possibility for that process to take a couple/few more weeks.  If SPX cannot clear the ATH, of course, then the bear options for this index will at least maintain some degree of clarity.  Trade safe.
 

Friday, June 23, 2017

RUT, NDX, BKX, Oil: "Trade What You See"


Last update talked about how INDU had formed a near-term topping pattern, and that pattern thus made me inclined to lean bearish on all major indices... although for NDX, I wrote:

NDX is interesting -- and here, NDX would definitely look a bit better with another push up to 5800+, either immediately, or after another down/up move.

INDU has indeed continued lower since then, and it is likely poised to head lower still.  As for NDX, the reason I wrote the above on Wednesday was because NDX didn't look quite complete for a five wave rally (the chart showed/shows NDX in a c-wave, and c-waves are five-wave moves), but instead looked more like three waves.  Since then, NDX has added another wave up and rallied to the suggested 5800+ target (5802 to be exact), which fits the pattern for a C-wave -- and more importantly, allows such a wave to be complete in a clean manner (this is important for future charting down the road).  This of course doesn't mean NDX can't rally a bit higher fairly directly, but there are now at least enough waves in place for a completed, and clean, correction to red "bear: A/1":



BKX has been in a near-term downtrend after getting that final push higher I'd hoped for, and stalled repeatedly at the noted resistance zone.  BKX has actually dropped about 3% already since then -- so anyone who sold the red resistance zone might consider tightly-protecting at least some percentage of those profits, just in case everything goes haywire bullish out of nowhere (not that THAT has ever happened in this market).



Crude is unchanged -- and I'm mainly publishing this chart again simply because after I published the last one, I noticed that StockCharts had messed up a few of my labels (unbeknownst to me), so I simply wanted to fix them:


And finally, RUT broke 1399, which adds at least a bit more confidence to the bear case:


In conclusion, as I've been discussing recently, a number of markets appeared to have been aligning -- and now finally appear to be aligned in a way that makes a bearish move quite possible over the coming sessions.  If RUT, BKX, and NDX have all topped (or nearly so), then there is in fact potential for us to be on the cusp of a fairly significant downdraft.  So as long as bulls don't pull a surprise breakout from these patterns, it makes the most sense to continue to lean bearish and simply "trade what you see" (as they say).  Trade safe.

Wednesday, June 21, 2017

RUT, BKX, NDX, Crude Oil: Bears Attack Oil

Nearly six years ago, I wrote that I believed the odds were 90% that the top was in for crude oil, and that it was headed to 25 in the coming years.  People thought I was nuts, but I remained bearish until January 2016, when I warned that oil was likely to find a bottom near the 25 target zone and bounce all the way back to 50-55.  This was about the time that everyone else was finally growing very bearish, but oil indeed bottomed at 26, and then bounced up to 51.67.

In mid-2016, I noted that 51.67 could be the top of the predicted fourth wave, but that it was reasonable to consider that a fourth wave at such a large degree might well take up more time -- so I placed a 2nd target for (iv) near 55, with a time target (which I don't normally do) in the December 2016-January 2017 zone.

Well.  Oil is doing its best to make it look like that (iv) label may have been placed correctly.  Here's the updated oil chart:


Though it's a little early to entirely rule out all bull options, bears have two things going for them:

1.  The new multi-month low breaks the potential of an abc off the high.
2.  The rally from 26 counts well enough as an ABC with a c-wave ending diagonal, and that pattern meets the requirements for a complete wave (iv).

Thus, we probably have to presume that the (iv) label is correct, unless/until crude gives us a sign that something else is going on.

Equities had a less-than-perfect day yesterday.  I would like to see RUT claim 1399 for some bearish confirmation.



BKX got another wave up as I was hoping, but there's no guarantee that wave is complete yet -- ideally, it's complete or close to it, but I can't entirely rule out another trip into the red resistance zone yet.


NDX is interesting -- and here, NDX would definitely look a bit better with another push up to 5800+, either immediately, or after another down/up move.  The tricky part is that there are enough squiggles for ALL OF Bear B/2 to be complete, if the micro fourth and fifth waves were compressed.  In other words, you can find the waves there if you look closely -- but they didn't unfold in the "usual" way, so we have to allow a little wiggle room. 

Either way, right now this pattern fits the bigger picture as a flat Bear B/2 correction, so using only NDX's CURRENT appearance (which can always blow up tomorrow, of course) as a guide, there may be another large down leg still pending.


Astute readers will notice that I didn't publish an SPX chart today, and that's because SPX is chartable only in a speculative way at this exact moment.  There are at least 3 viable patterns visible there, but no clear hands-down victor -- so I don't want to chart the options and encourage people to ignore the ones they don't "like" and merely trade their bias.  Thus I'll wait until it's a bit more clear.

In conclusion, crude's new low today hints that perhaps ALL OF the big (IV) is indeed complete.  Equities are in a position where bears can take the wheel if they're so inclined, but no indices have given bearish confirmations just yet.  That said, INDU does look very toppy on a near-term basis, so unless/until bulls can reclaim the ATH there, I'm inclined to lean bearish on even the major indices, at least for the near-term.  Trade safe.

Monday, June 19, 2017

RUT, BKX, SPX: "Seems Unlikely"


Last update discussed the potential that RUT has formed an ending diagonal terminal pattern, and we'll stick with that unless and until RUT invalidates that pattern:


RUT and SPX are (obviously) very different indices -- and SPX has yet to provide any bearish confirmation within its pattern, so it's entirely possible SPX will make another ATH.  Bears would love to see the prior ATH hold, of course.  If we rally today, then the zone around the ATH will be the next test for bulls.



Finally, I'd actually prefer to see BKX head at least a little bit higher, to give this pattern a cleaner resolution:


In conclusion, I'm default bearish on RUT, because I have a hard time wrapping my head around a target north of 45 million, even though I made that target up purely for humorous hyperbole purposes.  In reality, it's unlikely that RUT will exceed 40 million (okay, I'm still running with it!  Make it stop.).  Seriously, though, if that pattern is not an ending diagonal but is instead a bull nest, it is QUITE bullish (maybe not 45 million bullish, but pretty bullish nonetheless) and still hard to wrap my head around.  There have been a couple times since 2009 that I've been surprised by the market in such a way, but that type of surprise hasn't happened since maybe 2011.  So I can't entirely rule out the mega-bull pattern simply based on the grounds of "seems unlikely," as I have been surprised by this bull market a couple times before.  But I can still say:  "Seems unlikely."

Either way, do keep in mind my old aphorism:  "Tops take time."  Trade safe.