SPX Update: Short and Sweet

We're just going to focus on SPX today.  SPX has exceeded its target zone slightly, and future this morning are red on the back of the bad jobs number.  Despite that, I'm not entirely convinced that the rally is over yet, because it still appears to need some 4/5 unwinds.

I'm not completely closed to the possibility that it's over, but I'm taking a "wait and see" stance for the time being.

In conclusion, ES futures are trying to convince everyone that the rally's over and done with, but we may just be seeing a normal back-test of the upper boundary of the black channel, so it may not be as bearish as it looks.  We'll see how things shake out here over the next session or two and reassess if necessary.  Trade safe.

SPX, INDU, RUT: To Blow-Off, or Not to Blow-Off? That is the Question.

Last update noted that it appeared the rally still had farther to run, and that SPX was inching its way toward its upside target zone.  Yesterday, that target zone was captured.

So now the question becomes "is it close to being finished?"  And the answer is:  It looks like it still has some fourth and fifth wave unwinds yet to do, so it's probably not entirely over yet.  And given the structure of the entire wave, there is a genuine possibility of an extended fifth wave, so bears are going to want to be careful until the market declares that extended fifth wave potential is off the table.

RUT also allows for a similar possibility:

And while it's a bit harder to find such a possibility in INDU, I have to assume it's still present here, since it's present on RUT and SPX, and even on BKX.

INDU has come very close to the perfect "perfect world" target of 22699, and here again, it does appear that there are probably some fourth and fifth waves left to unwind, so that target is quite do-able, and possibly even too conservative.

In conclusion, it appears likely that the rally has at least a little farther to run, due to the fact that it seems to still have a few fourth and fifth waves to unwind.  We also have to be aware of the potential for an extended fifth, which, outside of technical analysis, is also known as a "blow-off top."  Thus the best thing to do for the moment is await an impulsive decline before getting too bearish.  There are times I can advocate front-running a turn, but it's difficult to do so now, with the market in this position.  Trade safe.

SPX, RUT, INDU: SPX Closes in on 9/13 Target Zone

It's recently occurred to me that it's been a REALLY long time since I discussed the basics of Elliott Wave Theory, and/or technical analysis in general -- so anyone who's started reading in the past few months may be totally lost.  Accordingly, here's something I haven't posted in as long as I can remember:  If you're new to Elliott Wave Theory, you might want to check out my brief primers (HERE).

SPX has continued heading toward the 9/13 target zone of 2534-42.  So far this has happened without any real surprises, since blue 4 bottomed where expected and then remained relatively straightforward.

RUT has continued to move in a parabolic fashion, and is trying to break clean away from its old megaphone pattern.  Sometimes markets will back-test the upper trend line of the megaphone after a breakout, but it's not guaranteed with a move like this one.  If we see an impulsive reversal, we'll attempt to determine if that's headed toward a back-test.

After INDU's brief "false start" lower in August, where we watched for bearish overlap that never came, it resumed its rally, and has now reached the lower edge of the "perfect world" target zone mentioned on 7/14.  Although, the perfect "perfect world" target is 22,699, so I'll be curious to see how close that comes.

Here again, there's nothing in the charts yet indicating a reversal, so bears may want to continue to show patience, despite the alluring (to bears) proximity of the "v" label.

In conclusion, while it appears that we're inside a fifth wave rally, that wave appears it still has farther to run.  It is also always possible for a fifth wave to extend, so bears will want to exercise patience for the moment, and await the first impulsive turn.  If you've been a long-time reader, you know that we don't miss many when it comes to impulsive turns -- in other words, typically we spot the first one and accurately anticipate the next one before it arrives, so there's really no need to jump the gun.  It's better to miss the exact top than to go broke front-running a turn.  Trade safe.

SPX and RUT Updates

Last update noted that we were giving the edge to bulls, and SPX indeed made a new all-time high from there.  It's been chopping around a lot since then, so we have to at least consider the possibility the blue wave 4 may be becoming more complex and could still be unfolding.  I've noted that possibility on the chart below:

We haven't looked at RUT in a couple weeks, and since last update, RUT has validated its preferred count.  This current rally has the look of an extended fifth in RUT.  Extended fifths tend to be absolutely relentless while they're underway, then they reverse abruptly and sharply.  But they do typically offer at least one retest of the prior high after that first sharp reversal, so if that occurs, we should have a chance to catch up with the reversal on its first strong bounce.

In conclusion, there's still nothing that's particularly bearish about the charts.  SPX could take a short-term detour if it wants, but presently we'd expect that to simply be part of a correction.  Trade safe.

SPX Update, and Some Fundamentals at a Glance

The last two updates suggested SPX would probably test the 2490 zone, and in the most recent update I stated:

I will throw my hat in the ring and say that I do suspect Friday's low will be broken in reasonably short order, because it looks very much like a B-wave. 

Friday's low was broken, and SPX headed to the 2490 zone (2488 to be exact).  From there, it bounced relatively strongly.  Right now, that bounce up has only been three waves, so it's not out of the realm of possibility that SPX will turn back down from here.  If the bull wave count is unfolding, then there aren't enough waves up in place yet, so we probably have to lean toward the idea that the market will hold that low and head higher -- particularly if SPX sustains trade north of 2504.  But that's not a given yet, due to the potential of black "alt B" and "alt C" on the chart below.

So, while I've noted the bull count is currently an incomplete structure, if the bear count is underway, then the current rally is instead already a complete structure.  So although I'm leaning toward the bulls, bears still have an out:  If the 2488 low fails, then we'll have to give serious consideration to the bear count.

I'd also like to share a fundamental chart that I found interesting.  The chart below show the SPX in comparison to Durable Goods Orders.  As we can see on the chart, the two have correlated almost perfectly over the past quarter-century -- up until recently, that is. 

Ever since the 2015 correction ended, SPX has continued to rally strongly, while durable goods orders have remained range-bound.  There are no other examples of this happening anywhere else on the chart, so how long this situation can continue is anyone's guess.  (It's already gone on for about a year and a half.)  But it does suggest that valuations are probably a bit too frothy, and this might fit with our expectations that a larger fourth wave correction is relatively close.

Interestingly, it was just announced that durable goods orders jumped 1.7% in August, so I suppose it's possible for durable goods to start catching up with SPX.  As I mentioned, there are no other examples similar to the recent past, so we don't have a precedent to draw from.  But I found the chart interesting either way.

In conclusion, SPX tested the expected 2490 zone, and has (so far) bounced from that zone.  As long as bulls continue to hold that low, then we probably have to give them the edge, if for no other reason than the simple fact that it's a bull market, so they don't seem to lose many of these battles.  But in the event SPX sustains a breakdown at 2488, then we'll have to shift the edge to bears for the near-term.  Trade safe.

SPX Update, and a Few Words on the Fed

Well, as we all know, last week Janet Yellen announced that's she's actually Janet Reno in disguise, and that the Fed will finally begin to attempt to unwind its paltry $4.5 trillion balance sheet, starting in October.  This weekend, Janet Reno/Yellen discussed a few additional details on the unwind, giving us a glimpse into what the Fed will be rolling off first. 

In order, below is Janet's list of the "first items to go":

1.  The Fed will begin by unloading an undisclosed percentage of its massive Beanie Baby collection, which it began purchasing in the 90's as a stop-gap to the Great Beanie Baby Collapse.  The program was originally intended to simply bail out a handful of banks who were overweight in the previously-skyrocketing Beanie Baby Sector, but it eventually expanded to include some of the largest private collectors, including Ben Bernanke.  Expect to see Beanie Babies regularly appearing for auction on the Fed's eBay account ("TheFerReal-USFed-ReserveYo").

2.  In December, the Fed plans to let a number of assets mature and roll off by simply not reinvesting with Bernie Madoff.

3.  In 2018, the Fed will be selling off William Shatner's kidney stone, which they purchased as part of QE 2 and have been holding in a special humidity-controlled vault ever since.  The vault alone has been costing taxpayers nearly $2.8 billion per month, so this is a bigger step than it looks at first glance.

Janet ReYellen stated that she's confident they can find at least a few other areas to "trim the Fed's fat" as time goes on, and she may possibly even consider parting with the Fed's original cut of Andy Warhol's Empire.

In other news, the market continues to trade.  As has become tradition for Friday sessions, this most recent Friday session was held on a Friday -- so that meant there were options expiring somewhere in the Universe, which meant that the market wasn't allowed to do anything other than grind around in a circle, as if it were Miley Cyrus and she had just lost an eye.

Accordingly, there's not a ton to add to last Friday's update, except to note the reaction to the lower red trend line that was already on the chart:

In conclusion, there's not much to add to the prior update, but I will throw my hat in the ring and say that I do suspect Friday's low will be broken in reasonably short order, because it looks very much like a B-wave.  That may simply end up being wave C of blue 4, but there's always a chance it will turn out to be something more significant.  Of course if we sustain a breakout over the all-time-high instead, then it's possible the most recent correction was a double zigzag (I have that as an alternate possibility instead of the B-wave).  Trade safe.

SPX Update: Where a Banker Can Be a Banker...

We're just going to focus on the SPX chart today, since hopefully "everything we need to know" is on that chart.  There is a little bit of doubt in that regard, because this is not a terribly clean wave structure, but we'll try our best to work with what the market has given us.  Thus the seemingly-important levels are outlined on the chart below:

Frankly, I hope the market bounces north of 2480 to keep things straightforward, because none of us particularly want to see yet another expanded flat C-wave.  Why?  You may ask, especially if you're a bear.  Well, because C-waves are impulsive.  And if we get an impulsive decline, all the bears are going to want to view that as wave A/1 down, and thus hope for another big leg down -- because there will indeed be an off-chance that an impulsive decline from here would be not the end of the correction, but the start of a new one.

But it probably wouldn't be the start of a new one, because odds would favor it as a C-wave.  Yet all bears know that "odds were made to be beaten!" so they'll keep wanting to short it all the way up... but SPX will actually be on its way to 22,967.55, and bears will end up holding the bag again.

Not that I'm cynical, here in our 8th year at Fed HappyFunLand, Where a Banker Can Be a Banker.

Anyway, what was I saying?

In conclusion, bulls hold the edge unless and until the noted levels are broken.  If those levels are violated, then we do need to stay aware that the goofy unorthodox nature of the preceding pattern is still going to keep everyone on their toes.  I, for one, am really looking forward to the resolution of the current wave.  Trade safe.