SPX Update: Bull Count, Bear Count

Last update concluded with:

In conclusion, note that the preferred count is near-term bullish now -- though I am only very slightly favoring this, and I'm far from 100% on it (not that anything is ever 100% in the market.).  One could almost say that I am borderline neutral until we see an impulsive rally from the market. 


We have not yet seen an impulsive rally (5 waves) from the market.  Yesterday we appeared to complete a large three wave move (an ABC), right at the first target I published in our forum (shown below) on Monday night (2677+/ was T1; the market topped 2 points shy):

If 2585 holds, then all of this is moot -- but we already know that, so today we're going to look at some additional options if 2585 fails, in order to gain a better understanding of what we'd need to watch for in that event.

The first options we'll examine are only near-term bearish, in the form of an incomplete C-wave (of red (B)) decline.  These would still ultimately lead to the larger (C) wave rally:

The wave structure since 2801 is anything but clear, which is disappointing, but there isn't not much I can do about that.  I mention it because this is why (beyond Target 1 above), my confidence in the lower target zones grows much thinner.  Target 1 is where a "textbook" C-wave in this position would bottom.  If we exceed that target by too much, then we obviously won't be dealing with a textbook wave.

If the picture is more immediately bearish and we're already working on the expected Big C/3 "crash" wave, then the chart below discusses some of the potential targets for that immediate bear wave:

In conclusion, the market has not yet completed an impulsive rally, so we have no confirmation yet whether 2685 was anything more than than a short-term low, and a trip to my original target zone remains possible.  If bulls can hold 2585, then all of this is moot, but it seemed prudent to examine the options if they can't.  Trade safe.

SPX and INDU: Downside Targets Captured

Just doing a quick update to note that my downside targets have been captured, and there are now finally enough waves for a complete decline.

The wave has taken a somewhat unusual micro structure heading into Friday's low, so I cannot be 100% certain that it's complete -- but it did capture my downside targets across the board (SPX fell 4 points shy), and the move can finally be counted as complete.  Patient bulls who've followed the last few months of projections should be sitting pretty right now, having just entered very close to the February lows, instead of entering too early and being shaken out (or enduring outrageous drawdown!).  And bears who have followed these projections should have some solid closed profits (perhaps also with some open runners until things fully clarify).

SPX fell 4 points shy, but "close enough for government work" and the chart below is unchanged:

In conclusion, note that the preferred count is near-term bullish now -- though I am only very slightly favoring this, and I'm far from 100% on it (not that anything is ever 100% in the market.).  One could almost say that I am borderline neutral until we see an impulsive rally from the market.  In the meantime, it goes without saying that any sustained breakdown of the February low from here would call for extreme caution from bulls, as that could trigger a trip anywhere from 100 to 400+ SPX points lower.  This is a very tricky moment, because we're looking for a complex correction in the context of a larger bear wave -- and if selling pressure is high enough, that complex move may not show.  Trade safe.

SPX and INDU: No Material Change

Today's update will be short and sweet, as there's absolutely no material change from the past few updates:

No change in SPX either:

In conclusion, I continue to expect that new March lows are on deck.  The main question will then become whether this is the (C) wave of B/2, or all of the larger C unfolding now.  Trade safe.

SPX and INDU Updates: No Surprises Yet, as Bears Won the Near-Term Battle

Here in Hawaii, we don't do daylight savings time.  I grew up on the East Coast and always hated daylight savings time when I lived on the mainland... but I think now that I live here, I hate it even more.  It's been kicking my already-exhausted butt lately, because it causes the cash market to open at 3:30 a.m. local time (instead of 4:30 a.m.). 

As a result, I am going to switch from the long-standing Monday/Wednesday/Friday schedule of updates to a schedule of Tuesday/Thursday updates, at least until further notice. 

Fortunately, there have been no real changes to the last few updates anyway.  Last Thursday's update noted the level bears needed to claim, but likewise noted that the Dow Jones Industrial Average (INDU) made lower prices appear likely for both INDU and SPX.  As I wrote in that update:

On the INDU chart above, I won't say I've never seen a pattern such as this one that ends up resolving bullishly -- but it's far more frequent to see such a pattern resolve bearishly over the near term.

INDU's updated chart is below:

The biggest challenge faced by all market participants right now is that we are clearly dealing with a series of complex corrective waves, and -- unlike impulsive waves -- corrective waves have virtually infinite options.  They do not need to adhere to the same rules as impulse waves, so (at times) they have the freedom to do almost anything.  The challenge this creates becomes especially pronounced within the context of the massive decline we saw from the January highs to the February lows -- because that leaves an awful lot of price leeway for them to work with here.   

We hit the bottom in February rather well, and knew to expect a sizeable rally from there -- but what we didn't know was the exact form that (presumably corrective) rally would take.  I kept hypothesizing complex moves, based on my prior experiences with such waves, and we're finally seeing just such a move.  But that doesn't make this any more predictable.  So please keep that in mind when you look at the charts I present.  Given what's in the charts at the moment, I'm projecting the path that seems most likely -- but the market can take other, more complex, paths if it so chooses.

This is one of the facts that some traders fail to understand about Elliott Wave Theory (or any market projection tool, for that matter):  Impulse waves must adhere to certain rules, which makes them predictable.  Corrective waves do not need to adhere to those same rules (except within the context of the next larger wave degree), which can make them somewhat unpredictable.

Your money is made during the impulsive moves; but failing to adjust your strategy during corrections will often cost you money.  One cannot treat corrective waves like impulse waves. 

Along those lines, I'd like to mention that it is technically possible that the big Red C decline has already begun, but again, I view that as less likely.  I view it as less likely because it's difficult to reconcile the correction since the February lows as a complete wave structure -- so I would expect that when the current decline completes, bulls will get another rally toward the all-time-highs to complete the structure.  I am mentioning it, though, because "less likely" and "impossible" are not the same thing.

On SPX's chart, I have outlined one additional complex corrective pattern (black alt. count) that is (again) possible, if seemingly-less-likely:

I'd actually like to see a rally up to back-test the red trend line, and possibly even a test of the blue horizontal support/resistance zone (on SPX's chart), but neither of those options are required.

In conclusion, bears have whipsawed the prior breakout, which we anticipated was likely.  Ideally, they'll keep pushing and break below the March lows, but because this is a complex correction, we cannot guarantee that this wave won't morph into something even more complex.  Trade safe. 

SPX and INDU: Fractured Markets

SPX continues to whipsaw everyone, bulls and bears alike.  Early this week, SPX broke briefly above its February high, then reversed right where I'd placed the black "or B" label.  It's possible that black C is unfolding, but bears have not yet accomplished their key goal toward that count, which would be a sustained breakdown at the red trend line on the chart below. 

It's normal for breakouts to retest important trend lines, so nothing truly bearish has happened here yet -- however, if bears can break below that red trend line and turn it into resistance (not a brief whipsaw, in other words), then they'll be well on their way toward making the black count a reality.  If they can't whipsaw this breakout, then bulls still have the ball.

Apart from SPX, an issue for bulls may be the Dow Jones Industrial Average (INDU), which still hasn't come close to clearing its February highs, and which is actually faring rather poorly when compared with most other indices.  This is not encouraging to bulls for a couple reasons:

1.  INDU tends to lead SPX, not vice-versa.  It is currently leading lower, not higher.

2.  The broad market is badly fractured.  NASDUCK made new all-time highs; SPX broke its February high and whipsawed; INDU is nowhere near its February high.  Over the past 9 years, equities across indices have generally rallied together.  The fact that they are not able to do so now is indicative of the fact that there is not enough liquidity to go around (as I spoke about previously).  These fractures essentially confirm that there simply isn't enough cash to pump everything to new highs at once... and bull markets need cash.  (Bear markets, of course, need thin liquidity.)

Can bulls reverse this situation?  Of course, anything is possible.  We can only analyze what's present in the market at this exact moment in time -- and as of this moment, both of the above situations exist.  And they paint a picture that suggests trouble may be brewing beneath the surface.

On the INDU chart above, I won't say I've never seen a pattern such as this one that ends up resolving bullishly -- but it's far more frequent to see such a pattern resolve bearishly over the near term (below the blue A/1 low, in other words).

Finally, I'm about up to my ears in the headlines about "trade wars."  I can't recall the last time the media milked an issue so heavily for every single intraday move.  If the market ticks downward, they blame "trade war fears"; if it ticks higher, they say "investors shake off trade war fears."

Holy cow, guys, get a new shtick already!  The "trade war" is not driving the market -- and it's certainly not driving every single intraday move.

There's been a lot of talk about China in the "trade wars," but apparently only 2.9% of our steel is even imported from China.  Our leading source of imported steel is actually Canada (accounting for 16%), with Mexico also high on the list (at 9%).  These so-called trade wars appear to primarily be a bargaining chip that will be used for renegotiating NAFTA, so I think the media is overplaying this card.

In any case, as we've noted, there are a couple warning signals from the market that liquidity is still thin (nothing to do with "trade war fears"), and while we could be close to a short-term bottom, bigger picture, the onus remains on bulls to prove they still have the firepower to keep the broad-based bull market going.  Trade safe.

SPX Update: Exclusive Short List of Contenders to Replace Cohn

Before we get into the charts, my exclusive sources in Washington have uncovered Trump's list of the candidates who are being considered to replace Cohn.  On condition of anonymity, my sources have agreed that it's "okay" for me to share this with our readers.

So, below is the current short list of leading contenders to replace Cohn:

Many pundits were expecting Square Based Pyramid to be on that list, since he's a lot like Cohn (but with more edge) -- but I bet a lot of people are surprised to see Cuboid on there!  Triangular Prism is generally considered to be the most bearish option.

I'm looking forward to us finally being able to watch a long-anticipated season of The Apprentice:  Washington Edition, as these leading candidates are forced to perform wacky antics before a live television audience, while Trump eventually tells all but one of them:  "You're fired."

Kidding aside, the market has continued to remain "more fun than a barrel of radioactive waste from Chernobyl," as there are currently no less than three possible patterns that could develop from here.  The one that has the potential of burning the greatest number of participants would be the black path on the chart below.

However, the blue path offers two different targeting methods that both arrive at 2868+/- as the final target, so that's interesting.

In conclusion, bulls are keeping things interesting, but their ideal count ("Bull Alt: 3") would still seem to be the underdog in the current market.  We'll have to continue to track this as it unfolds.  Trade safe.

Update Schedule NOTE

Didn't realize mainlanders had done Daylight Savings Time already this weekend, so update will be posted tomorrow.