SPX Update: Market Shifts Out of "Easy Mode"

Last update expected that SPX would rally toward 2675, then reverse lower to 2585, then rally again.  In actuality, SPX rallied to 2672, then reversed lower to 2586, then rallied again. 

Calling two large turns in advance, both within 3 points, isn't too shabby -- but now it gets complicated again.

Long-time readers know that a key tenet of my general trading thesis lies in the recognition that the market alternates between periods of predictability and periods of unpredictability.  We just cycled through a predictable phase, and now we've entered a less-predictable phase.  There are presently no less than 3 potential patterns which could develop from here, so I've done my best to outline those options on the chart below:

Option 3 (on the chart above) will be invalidated north of 2673.  Option 2 would be invalidated with immediate sustained trade north of 2706 -- please note that 2706 is no longer the invalidation level if we follow the choppy path shown.  In an ending diagonal, wave iii is not allowed to be longer than wave i, so wave iii would need to stall shy of 2706, but wave v could later exceed that level.

Do be aware that even if both option 2 and 3 invalidate, that will not automatically guarantee that we're in red (C) -- but we'll burn that bridge if and when we come to it.

In conclusion, last update's anticipated path played out well enough, but from here we should await further info from the market before we attempt to develop a high-confidence outlook.  On the bright side, we do have two clear price levels to watch, to help narrow the options.  In all likelihood, we'll be able to narrow these down within the next few sessions.  In the meantime, trade safe.

SPX Update: No Material Change

Today's update will be short and sweet, because it appears that the expanded flat we discussed last update is underway:

[Please note typo!  "Textbook target" should read 2675-96, not 2575-96!)

The textbook expectations for this move are as shown in the prior update: 

1.  That the rally continue to at least 2675-96;
2.  That the move then reverse and head below 2585 (traditionally below 2553, but that's not required). 

Note that the rally could run higher, and/or that the subsequent low could come at much lower prices if it so chooses, so we have to track this in real-time to see whether this will develop as a "textbook" pattern, or as some variation thereof.  Also worth a mention that there's an alternate, more bearish flat that could peak between 2662 and 2674.

Beyond that, nothing to add to the prior update.  Trade safe.

SPX Update: Bears to Market: "You Can Pay Us Now or You Can Pay Us Later"

Back in September, I suggested the end stage of the bull run (before a large correction) would be a fast and furious rally; a "blow-off top."  Each day after, we continued looking for higher prices, as the blow-off top unfolded -- and in so doing, we captured well over 300 points of the ensuing rally. 

But on January 31, we changed our footing from bullish to bearish, and have remained longer-term bearish ever since (though after the February lows, we turned short-term bullish until March 5).

Frankly, I don't care which direction the market moves, as long as I can make money trading it.  Being a "perma" anything is stupid, because the market does not move in straight lines -- otherwise the 2007-09 bear market would have dropped to zero, and the recent bull market would have run to infinity.  In terms of ease of trading, I actually preferred the extended fifth rally, because it was incredibly easy to make money on the long side from September into January. 

But, conversely, it was also incredibly easy to make money on the short side during the first leg of the decline, when we were among the few people who turned bearish at the right time.  (It will get harder the more people catch up with us, though.)

It was likewise fairly easy to make money over the last month, because we had two wave count options, and BOTH of them pointed toward a target of 2565-80 SPX, which was finally captured yesterday. 

More interesting than that target capture, though:  The Dow Jones (INDU) briefly broke below the February low, which is at long-last a technical confirmation of my read that the decline from the all-time high into the February low was indeed impulsive (in the direction of the larger trend).  That break does great technical damage to any and all bull counts (none of which we have favored since the all-time high), at least for the intermediate term.  Bull counts have been reset in that index.  That break also rules out a huge triangle fourth wave, which many technicians were trying to cram into this wave structure (I never felt the structure supported a triangle, which is why I never entertained that notion).

The big question now is whether bulls can pull off some sort of near-term stick save before the wheels come off.  The only approach I know to take when you're looking at a possibility that is near-term bullish but longer-term bearish vs. a possibility that is bearish across the board is to set up challenges for bulls to beat, and to maintain a bearish stance until they do.

By February 2, we knew that the intermediate-term trend had changed from bullish to bearish -- and knowing that is 9/10ths of the battle, since you know at that point that any rallies are going to be against the next-higher degree of trend, and not with it. 

It's one thing to entertain speculation, but when it comes to trading, the benefit of any doubt must always go to the next higher degree of trend.

So that's where we sit today.  We just now captured my first downside target, and although I thought last week that there was a chance (C) of B/2 may have completed at 2585, we closed at 2582 yesterday -- so bears haven't missed much.  I don't mean to imply that (C) of B/2 is off the table -- anything but.  It is still very much on the table.

However, since the pattern into the recent low is not clean, the easiest way to simplify things from here is to give the benefit of the doubt to the primary trend unless and until bulls can clear certain hurdles, discussed on the chart below:

[Note:  Typo... chart should read "before 3/C begins," not "before 2/B begins."]

In conclusion, SPX captured my standing target, and INDU made a new low for the move, which moves the odds even higher (from my previous near-90% certainty) that the intermediate picture remains bearish.  To separate the immediately bearish count from the "delayed" bearish count, we'll simply leave it to bulls to "prove" whether they can delay their day of reckoning or not.  We will give the benefit of the doubt to the larger bear trend until they do. 

One interesting thing to note is that it's entirely possible that the reason this wave has been somewhat choppy is because it's possible that we have not actually seen the meat of the decline yet.  In other words, as bad as the last month has been for bulls, it could actually get much worse over the coming weeks.

And here, this is a fairly easy pattern in that sense:  I see almost no options for any kind of lasting long-term bottom at current prices.  Trade safe.

Late addition:  It has come to my attention that a visual would be helpful, especially for those new to Elliott Wave, so I am adding this chart to further explain details I had discussed only verbally earlier in the update.  Also be aware that if SPX sustains a breakdown at yesterday's low prior to exceeding 2659, then that could be an exceptionally bearish indicator:

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.