SPX and INDU Updates

SPX has continued to move in the "two steps forward, one step back" style that is common inside diagonals (it's also common in bull nests! -- right up until they finally break out and run relentlessly higher), and thus the market has continued to annoy pretty much everyone.  There's no material change from the past couple weeks of updates:

It is worth a mention that this is what we've been expecting the market to do since way back in early February.  I lost track of how many times I warned about a double retrace and that "all roads lead to (2)/B."  The market refused to take anything resembling a straightforward path, but it's interesting how closely it ended up following a chart I originally published back on February 6.

Here's the chart from February 6, showing my "best guess" blue preferred path (keeping in mind that I never intend these to be "time projections" unless specifically noted -- I simply work within available chart space):

And here's what actually happened/is happening:

Thus, while this move hasn't exactly taken the straightforward path, it has followed the broader path that we laid out immediately after the January/February mini-crash remarkably well.

From that perspective, this move should come as no surprise.

As to the present:  Basically, at this point, bears don't want to see SPX sustain trade north of 2825, because (as noted) that would invalidate the diagonal.  Now, a break of 2825 does not invalidate all bear patterns, but given that a bull nest remains possible, bears should avoid complacency.  Once we see the first impulsive decline, we can consider calling a top -- until then, the market can continue its upward climb.  Trade safe.

SPX and Oil Updates

A week ago, I discussed that we should probably anticipate an overthrow of the upper red trend line on the SPX chart, and that has finally happened:

Interestingly, Crude Oil reached, and reacted to, a target/resistance zone that was correctly identified nearly 8 months ago.  At the beginning of May, I noted that we were in the target zone, and we've turned from that zone since then.

In conclusion, SPX is getting into the ballpark where a diagonal (if that's what this is) could complete, but we do not yet have an impulsive decline to confirm its completion.  Thus, at the moment, we can't rule out some additional thrusts higher, because the invalidation point is still a ways off at 2825.  We'll see how it develops from here.  Trade safe.

SPX and BKX: More Fun than a Backyard Barbeque

SPX has continued to be more fun than a backyard lava fountain, but decidedly less spectacular.  Frankly, if I had been trying to do much trading during the past month or so, I would probably hate this market.  As it sits, I decided to step back a bit when things got squirrely at the start of May, so I'm mainly just getting bored with this choppy pattern.  Since May 29, the market has moved higher primarily via overnight gaps, but then just grinds around when the cash session opens.

This is a good recipe for a pending strong move in one direction or the other.  The lack of daily progress suggest bulls and bears fighting it out; so when one side finally runs out of firepower, the market should have room to run against the losing side.

The pattern between the red lines below is typically bi-modal as a result.  It appears to be either a bearish ending diagonal terminal pattern, which would typically retrace to the bottom of red (ii) in one-third to one-half the time it took to form (the clock starts when it completes), or a bull nest (a strong launchpad).  Again, 2825 appears to be the dividing line.

Another market worth keeping an eye on is the Philadelphia Bank Index (BKX), because it could suggest significant weakness if it breaks down:

Some readers have asked about whether the Russell 2000's (RUT) new highs mean that SPX is "certain to make new highs too!"  But that's a somewhat misguided look at things.  There's a reason that most analysts don't use the RUT as their guide for the broad market -- the dollar volume traded in RUT is extremely low compared to SPX.  It is worth mentioning, though, that INDU still hasn't exceeded its May highs.

In conclusion, we'll continue favoring the ending diagonal by a narrow margin unless and until the market tells us not to.  Trade safe.

SPX Update

Still nothing new to add since last update, as the market has spent the past month reminding us that "up" and "down" are never the only options (sideways chop zones are the worst).

The proposed diagonal still remains the best "lead" on what this pattern might be:

There are at least two other patterns that could be valid here -- one is a bull nest, which I'm not inclined to favor at the moment, but we'd have to consider if SPX sustained a breakout north of 2825.  The other (likely) breaks above 2743, then reverses lower and retraces back below red (iv) before heading higher again.  I'll update with more details if either of those patterns comes to the fore.  Trade safe.

SPX Update: "And the Wisdom to Know the Difference..."

I recently received a question as to what my near-term preferred count is, so I thought it important to reiterate that my stance in that regard hasn't really changed since April 27, and I remain basically neutral on the near-term pattern.  I remain bearish about the longer term, but I'm not presently certain the short-term path that we'll take to get there.

There are times the market is reasonably clear to me, and at those times I present my preferred outlooks and targets.  At other times, the market has multiple options and no clear path seems to have an edge -- and during those times, I would rather watch and wait than try to predict something just for the sake of predicting something.  I actually believe that the approach of "always needing to think we know" is counterproductive.  The reality is, every day is not a tradeable pattern, and there are times to expand capital and times to protect capital.  Knowing the difference is vital, because overtrading when you can't find an edge is a sure fire way to grind your account down.

As it turns out, shifting my near-term stance toward neutral at the end of April was probably the most productive thing I could have done  On April 27, SPX was trading at 2666, while yesterday it closed at 2605.  In more than a month, it's only changed by 39 points in absolute terms, and has ground up a lot of traders in the interim.  That grinding could have been avoided by awaiting more clarity, which has been my intention this entire time.

Long-time readers know that I believe one of the mistakes made by novice practitioners is to believe that one "should" attempt to predict the market every minute of every day, when in reality this is impossible.  The market sometimes provides us with an edge, and if I see such an edge, then I publish it.  Other times, I will publish a couple options with some "if/then" equations.

Still other times, the odds seem to favor nothing in particular -- perhaps those odds are 6 to 5, or even money -- and there's really not much one can do during those times, besides wait them out.  That's essentially where we still find ourselves at the moment.

As I mentioned last update, bulls have continued to hold the prior breakout zone, so that's one zone to watch, and may be possible clue.

Keeping in mind the above caveats, I've sketched in one potential count that would fit the pattern across multiple time frames, and would at least fit into place as the missing puzzle piece.  Whether this pattern is correct or not is something I'm far from confident on at the moment, but I figure it is certainly worth being aware of:

In conclusion, the market really hasn't done anything noteworthy over the past month, so it's still something of a "watch and wait" zone, but at least we do have a few things to watch.  Trade safe.

SPX Update: Stockcharts Hates Me

Just one chart today, because the market has reached the downside inflection point that we've been discussing for a couple weeks, and because I'm tired of Stockcharts deleting all my annotations and making me start over ever single time I want to simply update a chart.  This is something it does on certain select charts because it hates me.

Accordingly, I'm not going to even update this chart, because if I attempt to do so, I'll have to redo EVERYTHING on the chart.  SPX has again tested the breakout line that we noted a couple weeks ago.  So far that line has held.  I'm tempted to say that this may be temporary, but I can't be very confident on that call.

In conclusion, the market has reached its first downside inflection zone, represented by the prior breakout.  If bulls can hold that zone, then they're cleared for additional rally, but if bears sustain a breakdown there, that would constitute a whipsaw and could suggest further downside.  Trade safe.

SPX and INDU: No Material Change

The market has continued range-bound, so no material change yet.  At this rate, I'll be able to keep reprinting the same charts forever, until such time as I spill coffee on them.

INDU likely either completed ALL OF the noted c wave down for the bull count, or wave 1/a down for either the bear count (if wave 1), or a more complex flat (if wave a):

In conclusion, there's still no material change from the last 2700 updates.  Hopefully this pattern will start to resolve one way or the other sometime before the Earth crashes into the Sun.  Trade safe.