SPX and INDU: Bear Market Bounce, or the Start of Something More?

Last update, we talked jokingly about "perma" (bulls/bears)-- and the way to avoid becoming a "perma" is to recognize that the market is a dynamic mechanism, constantly in flux.  Things can and do change on a dime, so we'd better be nimble enough to recognize as early as possible when that may be happening.  We are in such a phase right now.

SPX did make a very slight new low since last update, and then it bounced as if it hit a catapult.  The strength of this rally is not unheard of for a "bear market rally" -- however, the fact that it began at a long-term trend line, and the fact that it continued past first resistance should give bears at least a dose of caution.

As of right now, it's not time to entirely abandon the bear case JUST YET, because the rally is only three waves in structure.  But bears need it to stay that way.

SPX:

In conclusion, if this rally is a fourth wave, then bears probably need to keep it as a 3-wave corrective structure, and likely shouldn't allow too much higher.  If this develops into a five-wave structure, then we will have to give more consideration to the idea of a more lasting bottom.  So yes, I'm a little ahead of the curve talking about this -- but after all, that's the name of the game.  Trade safe.

SPX and INDU: The Market is Random -- and Someday Trained Sheep Will Pilot the Concorde

The end of 2018 is fast approaching, so before it ends, I wanted to briefly revisit a piece I wrote on January 10, titled:  "Does 2018 Rhyme with 1987?"  In that piece, I wrote:

There is some present similarity to 1987 -- a year which saw a crash, but saw that crash come within the context of a larger bull market.  Most interestingly, the blue chips have created the perfect setup for a very similar situation this year. 

And it might not be too far off, relatively speaking.

Let's focus on just one chart today, but we need to caveat that we do not yet have impulsive declines in any major index, so this must be considered as purely speculative until we do.  As we've seen so many times already, fifth wave extensions love to tack on more fifth wave extensions, so we need to see an impulsive decline to finally signal at least a temporary cap to that trend.

Given the number of perma-bears who are now out tooting their horns saying they've been "warning about this" -- well... let's just say that some of these perma-bears have not STOPPED warning about this for many years, so they've missed the entire rally.  As long-time readers know, I am not a perma-bear; for example, I was very bullish by the start of 2013, and published long-term targets (for wave iii) of 2170 for SPX at that time.

I was likewise still bullish into the latter portion of 2017 when I was calling for an extended fifth rally -- and, as of the penning of that article, on January 10, I was still not bearish yet because we had no impulsive declines (and so had to recognize the ongoing uptrend); but I was growing increasingly cautious in recognizing that the structure was likely nearing completion.  As we can see from the above quoted paragraph, and from the sentence quoted below:

Amazingly, the last time I spotted an impulsive decline in SPX was back at the very end of November, so it's somewhat mind-boggling that we've gone this long without another one.

So, I wanted to call back to that article because, given the waterfall decline we've been witnessing, I think we can now definitely call that a "hit," and agree that 2018 does indeed rhyme with 1987.

(You don't get to hit huge calls like that very often, partially because they don't come around very often -- in fact, some people go an entire career without ever hitting one.  I would say it's the "call of a lifetime," but I'm torn between this and my 2011 long-term bearish call on oil to hit 25+/-... and my (then) bullish call on bonds back in 2012... and my long-term mega-bullish call on the dollar, also from 2011.  But for sure, Elliott Wave is all "dumb luck" -- and the market is completely "random and unpredictable"!)

Moving on to the current charts, the long-term INDU chart reveals the tag of an interesting trend line -- one which I called out as a potential target back on October 14:

SPX has reached a trend line of its own:

Given these factors, if bulls are going to put anything together, even short term, now might be the time for them to attempt to mount a defense.

If they do put a bounce together here, the odds currently favor that will merely be a fourth wave.  Nothing's impossible, but there are not many patterns that allow for a bottom here.  And just as we awaited impulsive declines at the start of the year before getting too bearish, we should await impulsive rallies now before getting too bullish.  As I wrote more recently, on December 17:

Bulls, of course, would want to show extreme caution on a sustained breakdown of 2583.  Nested third wave declines can be, as R.N. Elliott said, "a wonder to behold," so discretion is definitely the better part of valor where nested thirds are suspected.

Does that quote make more sense now?

Either way, that hasn't changed yet.  We're likely still in a nested third wave.

In conclusion, until we see a defined fourth wave, there's nothing to indicate a bottom is near, and -- amazingly -- there are even counts that allow the possibility that the decline is only halfway done, and while that may not be probable, it IS possible -- so this is still a very dangerous position for the market.  Trade safe.

SPX Update: Next Downside Target Captured

For the past couple months, I've remained consistently bearish on the bigger picture, with our only concerns being the potential of near-term rallies that have all been expected to resolve bearishly (and have).  At yesterday's low, SPX had dropped more than 500 points off its all-time high, which it reached just a little over two months ago.

The funny thing to me is that, according to pundits, "a 20% decline" constitutes a bear market.  Which means that, according to pundits, we're not in a bear market just yet.

Pundits are silly.

SPX captured and exceeded its first downside target, and while it managed to hold black support, it's hard to conceive of a pattern where yesterday marks "the final low" of this move.

It's worth noting that, in my mind, the fact that black support held indicates that this is STILL "an orderly decline."  Meaning we haven't seen anything approaching "panic selling" and a washout yet.  If this wave is all the nested bear that it appears to be, incredibly, we may only just now be approaching the third wave "point of recognition," where the masses finally get wise to what we've known for weeks (and for hundreds of points):  Specifically, that this isn't just another run of the mill short-lived "correction," but something more significant.

What I'd actually love to see here is a complex fourth, or another nested second wave to give bulls at least a little bit of hope, but SPX must reclaim the red channel on the chart above or the decline could accelerate.

In conclusion, the intermediate-term trend still remains down, and at present, with SPX beneath red and inside the green waterfall channel, the trend at all time frames is down.  Maybe bulls will put something together for another short-term reprieve, although we can't count on that -- but if they do, it should simply offer bears another chance to reload.

p.s.-- Since I probably won't publish an update on Christmas Eve, let me take this opportunity to wish everyone a Merry Christmas!  (and/or "Happy Holidays!" if you prefer)  Five years ago, I penned a deeply-personal article just before Christmas, and many readers over the years have written to let me know how much they enjoyed the piece, so it's become something of a tradition to link to it in my final post prior to the Christmas break, for those interested:  A Christmas Story: Reflection on What Matters 

Trade safe, and be safe, this holiday.

Oil and SPX Updates: SPX Captures First Long-term Target Zone

This week, SPX finally captured its first long-term target, which was a break of the 2018 lows.  In a way, that might mean "the easy money is over" for this exact moment.  The market sometimes has a tendency to get whippy immediately after a major target capture, but we'll see how it goes.

Today is a Fed day, which typically means added volatility, but VIX is already hovering around 25, so it's hard to imagine today will generate too much more volatility than we've already seen in recent sessions.  What's interesting here is that pretty much everyone is expecting another rate hike today -- so one would think that's already priced in... but the pattern says that a nested third wave is possible.  So does that mean there are still a few holding out hope, and if we get a rate hike, the market will finally give up and let go?  Possible, but let's not ignore the other side:

The other side is that a complex b-wave low is still not out of the question, so any positive surprises could lead to a big c-wave rally.  At best, a rally would simply delay another leg down, and present bears another short op (in the end).

Zooming out, we can see that we now have a whipsaw of the long-term red trend line.  This is what we've been expecting for a while.

I've also had requests for an oil update, but this chart has managed to work for months at a time since 2011, with very few updates needed.  Last update (May 2018) expected that wave (iv) could complete near 72 +/-.  That zone did offer resistance and ultimately generated the current waterfall -- but oil ran just far enough that I can't rule out the possibility that Red C completed back at 26.05.  I mean, after all, that was a mere point away from my long-standing target of 25, which was originally published in September of 2011 -- and technically, I always included a "+/-" next to the 25 target... so you know, capturing around 74 points of oil's last decline might have been good enough.

Basically, the first warning sign oil bears want to be alert to is a sustained breakout over the red waterfall trend line.

In conclusion, SPX has captured its first target zone, so some whipping and sawing wouldn't be unusual here.  On the flip side, I cannot overemphasize how much bearish potential energy is in the current pattern.  If bulls can't generate a c-wave rally soon to relieve a bit of pressure, this could easily turn into a sustained waterfall decline.  Trade safe.

SPX Update: Target Capture; No Material Change

Last update prognosticated that the market would likely head lower directly, with the minimum target suggested as "the low end" of the zone between 2584 and 2620.  Friday saw SPX reach as low as 2593, which certainly qualifies as the low end.

Since 2583 remains intact, the question from last update is unchanged.  If this is a near-term bullish pattern, then it could bottom in this general vicinity and run north of 2675, with the area near 2700+/- as one possible target zone.  If this is the uber-bearish nested third wave, then we could still bounce a little bit, but the market would be skating the edge of a steep cliff.  The next few sessions should answer these questions, but bears might want to be at least a little cautious here near the 2583 low.

Bulls, of course, would want to show extreme caution on a sustained breakdown of 2583.  Nested third wave declines can be, as R.N. Elliott said, "a wonder to behold," so discretion is definitely the better part of valor where nested thirds are suspected.

Beyond the target capture, there's not much to add.  If bulls want a more complex second wave (either at black degree or red degree on the chart above), then they could begin that run soon (keep in mind that both patterns are ultimately still bearish over the longer term).  If bulls are ready to throw in the towel immediately, then the bearish potential energy in this pattern is significant.  As noted, the first step for bears is a sustained breakdown at 2583.  Trade safe.

SPX Update: Market Teetering... Will It Fall, or Can Bulls Right the Ship?

On Wednesday, the market formed what appeared to be an ending diagonal near the highs of the session, then dropped like a rock late in the session, which is the expectation after a completed diagonal.  The question now is whether that diagonal represents part of a b-wave, in which case SPX could retest the zone between 2584 and 2620 (I know that's a large range -- likely closer to the low end), or whether the diagonal was ALL OF wave c of a smaller wave 2.

If it was all of C, it is a VERY bearish pattern, and today/Monday could see a nasty sell-off.  If it's part of a b-wave, then SPX would likely hold 2583 or thereabouts.  Thus 2583 is the first level bears need to claim and sustain trade beneath, while Wednesday's high is the level bulls need.

The easiest way to look at it is that the market remains bearish at all time frames as long as it holds below Wednesday's high.

In conclusion, there's no true resolution to the near-term pattern yet, but there are hints that things MAY be about to get even more bearish.  We'll see how today goes.  Continue to keep in mind that, at best, bulls are looking for a near-term reprieve.  Longer-term looks bearish either way.  Trade safe.

SPX and BKX Updates: Near-term Decision Time

It's near-term decision time for the market, as it has rallied to (and so far stalled at) the first meaningful resistance zone.  The next few sessions could set the tone into the end of the year.  Bulls primary hopes remain for a near-term rally, because both potentials are bearish over the intermediate term.

BKX came very close to capturing my first downside target, so in the event SPX can sustain a breakout, then BKX bears may want to protect/capture some of the 13% profit they've earned over the past two months.

In conclusion, futures suggest SPX will open near the black trend line on the first chart -- if SPX is again rejected soundly at that line, it could suggest a strong sell-off will begin.  If bulls can instead sustain a breakout, then bears should probably demonstrate near-term caution, as the larger red "or (2)?" would open up as one (of several) options.

In all cases, it's difficult to see any type of sustainable bottom in place -- at best, bulls get a Santa Rally before another large leg down.  At worst, things break down immediately.  All roads continue to appear to lead down over the longer term.  Trade safe.