SPX and INDU: Fed Shows Up

Yesterday, the Federal Reserve announced an emergency half-point rate cut, and the market went crazy and spiked higher.  For a minute (literally).  Then everyone suddenly remembered that rate cuts don't cure viruses, and the spike reversed with a vengeance.  We really are in uncharted waters here, generationally.

While I've heard some media personalities insisting that "we shouldn't be so concerned," because Coronavirus "hasn't killed as many people as the flu," the operative word missing from that phrase is YET.  We can't compare the final numbers at the end of a virus' run (flu) with developing numbers at the BEGINNING of an outbreak (Coronavirus) and expect those numbers to have any relevance.  That is a false and misleading comparison; apples and oranges, as they say.  It would be like comparing the savings accounts of a 19 year old who has $500 with a 65 year old who has $1000 and saying, "Well, obviously the 65 year old is better at saving money!"  In reality, the reverse appears to be true.  The 19 year old has just gotten started and is pacing to develop a much larger account over the same amount of time.

Anyway, enough about the potential global pandemic.  Just keep hearing the fallacy of comparing the flu's final numbers with Coronavirus' developing numbers as if it means anything, and illogical comparisons bother me, because they lead to incorrect conclusions.

But on to the charts!

First up, if INDU is working on a fourth wave, there are enough waves for it to potentially be complete, though I would like to see a break of yesterday's low to help confirm that.  So far, it appears to only be three waves down to yesterday's low, so wave 4 (if that's what this is, and we can't be sure), could still run farther if it wants.  Bears should probably be at least a bit cautious much north of yesterday's spike high.

Bigger picture, given that the Central Banks are beginning to show up, I've at least added the bull count as an option (currently alternate):

Finally, recall this chart and that the market hasn't done anything unexpected (yet):

In conclusion, yesterday's high is an inflection zone for wave 4, or wave A of 4.  Yesterday's low is an inflection for an ABC down from that high (so bears need to claim yesterday's low).  We'll see how the market reacts from here.  Trade safe.

SPX and INDU Updates

Last update had the market nearing the bottom of a potential 3rd wave (per the count shown on INDU), though I caveated not to bank on that (and I maintain that as a standing caveat during waterfall declines) -- but given Friday's large sideway-up grind, it does appear that we did hit the bottom of a 3rd early in the day:

We also broke the median channel line in SPX more significantly, which was expected to lead to a bounce:

SPX is currently hanging in a sort of no-man's land between trend lines:

In conclusion, we're in a zone where the market could bounce if it wants to, but there's nothing terribly definitive in the charts at the moment, as we're hanging in a sort of no-man's land.  The first upside inflection zone is near SPX 2990-3000, where the downtrend line from the all-time high currently sits.  If the market can maintain trade north of that, it would at least break the near-term waterfall channel, which would be something it hasn't had the strength to do since this decline began.  If it can't, then we may just be seeing a "dead cat bounce."  Trade safe.

INDU and SPX: The Perfect Storm

Last update discussed some of the lower zones the market could be aiming for, and those have since been captured and exceeded.  We also had a timely discussion of the Mega-Bear Count (and I'm glad we did), and that count is, amazingly, not looking at all impossible.

Before we go further, I'm going to reprint something I wrote in the forums yesterday:

I'm going to restate this yet again, but I think we're in a psychological dead zone for the market, and I have a hard time seeing us get out until there's either Central Bank intervention, or a cure for Coronavirus. 

On its current trajectory, Coronavirus will devastate the world economy, so there's a tangible issue there... but intangibly, Coronavirus triggers a PRIMAL fear in people: The fear of death. People associate money with security, and we associate security with life. 

We thus associate MONEY with LIFE. 

A virus that triggers our collective fear of death likewise triggers a collective scramble toward self-preservation. And that means preserving our assets. Thus, in this psychological backdrop, the selling is perceived as an additional THREAT to our security, to our well-being. And it thus can easily beget even more selling. 

This is a new challenge for most of us who are alive today. We haven't seen a deadly global pandemic in our lifetimes. And, at least in the West, we have grown soft and weak as a society. Many people think "struggle" means getting a bad haircut. They are ill-equipped to deal with genuine struggle, and thus will likely be even more prone to panic. In other words, this could be something of a "perfect storm" striking the market. 

I will continue to be extremely cautious, and while I will hedge along the way, I probably won't consider going net long until we see a CLEAR (not a "well, can't rule this one out!") impulsive rally.

There are some rumors floating around the Street that the Central Banks may indeed step in this weekend... so I guess if those are true, bears need to stay alert to the option of a gap higher on Monday.  I can't trade rumors though, so I take them with a grain of salt.  Let's look at some charts.

This first chart shows that my preferred read (discussed back on February 2) of a nasty bear nest was correct.  The question now is how many more extensions the extended fifth wants -- so don't take the presence of any v's on this chart as proof-positive that it's time to jump out in front of this freight train.  It can be a very bad idea to front-run this type of wave.  Patience is key.

Bigger picture, unless the Central Banks jump in "bigly," then the Mega-Bear Count isn't looking so crazy after all.  Now, that said, I'm a firm believer that we always need to understand both sides of the trade:  The bull count now is that the current decline is a nested SECOND wave, to lead to a massive third wave rally.  If we see coordinated Central Bank intervention, anyone who lived through the Quantitate Easing years (2009-2014) knows that the Fed's printing press can work absolute wonders on the stock market (and it can even create all sorts of "excellent" jobs, such as Part-time Gum Wad Remover and Emergency Bumper Car Repair Person -- remember those years?  Cracks me up that many in the media already seem to have forgotten how bad they actually were.)

Anyway, keep an eye on that lower trend line, if we get there.

Next up, SPX has fallen through median channel support.  In the past, this has led to brief-lived bounces, but keep in mind that if we're in the Big C wave, then we can't COUNT on that.  In the Elliott Wave world, C wave is sometimes said to stand for "Crash" wave.  C waves are third waves, so they have all the power typically associated with a third wave.

In conclusion, due to the depth of the retrace, we're likely down to two options:

1.  The Mega-Bear count
2.  The decline as a bullish second wave

What we're watching for now is either/both

1.  Significant Central Bank intervention
2.  An impulsive rally

Until then, draw your crash channels and wait for the market to break out before even considering getting bullish.  Trading this wave, I've been reminded of my friend Lee Adler's old saying:

"There's no such thing as support in a bear market."

Trade safe.

SPX and INDU Updates: Megabear Option for Consideration

The best thing about catching a decent top is that if the ensuing decline runs farther than you anticipated, it's just a bonus.  The current decline has not yet run farther than anticipated, but it has shown more FEROCITY than I anticipated... and that means we need to at least take a look at some more bearish options, to keep in the backs of our minds.

Here's the thing:  I have a hard time seeing this decline ending until the central banks intervene, either overtly or covertly.  Let's use our brains for a second:  The world is rightly scared of the economic impact of a global pandemic, and that pandemic hasn't even gotten rolling in Western countries yet.  So right now it's just the anticipation... but we're not feeling much impact here in America's actual economy yet.  What happens if/when people are afraid to leave their homes?

So it would seem the central banks will need to stem the bleeding at some point.  Accordingly, we're going to take a look at a more bearish option.

Back in 2018, we were all over the two mini-crashes and saw then coming a mile away... but one thing that always bothered me was the final wave into the December 2018 lows didn't "look" like a C-wave.  As the 2019 rally wore on, though, I figured it must have been a "hard to count" C-wave.

Or maybe not.

Today we're going to look at the "not" option:

Next up is a simple trend line chart of SPX.  Let's not jump right to the above megabear option just yet, but first watch how the market reacts to upcoming support:

In conclusion, I'm not favoring the megabear count JUST YET, but it's an option that we need to keep in mind.  First step for bears is to sustain trade below trend line support.  The first step for bulls to hold things together and keep the smaller C-wave previously discussed on the table is to, of course, hold support and start generating some impulsive rallies.  We're in the zone of an inflection point (meaning the market could bottom directly), so we'll see how things unfold.  Trade safe.

SPX Update: Confirmed -- and Confirmed

Last update claimed that a new low on Friday would confirm an impulsive turn, and that new low happened, thereby providing fair warning to bulls that my "out on a limb" C-wave count (first discussed on Feb. 7) back to the January lows was likely underway.  Today's open will confirm my initial read:

In conclusion, there's not much to do today other than take a quick victory lap, and hope that my fairly stubborn insistence on sticking by my initial read has helped readers.  This decline is a clear extended fifth in SPX, so when it does bounce, it will be fast and furious, so stay alert to impulsive rallies -- but keep in mind that it can extend further.  We'll take another look at additional potential targets next update, if needed.

SPX and INDU Updates: C-wave After All?

Well, this is an interesting conundrum.  In the recent past, we've been watching for the possiibility of a B-wave high, to be followed by a C-wave decline, and the market has repeatedly flirted with the idea.  On Wednesday, the market briefly broke above the resistance zone, but it failed to hold that breakout, and collapsed sensationally on Thursday.  It then recovered a good chunk of that decline into the close.

Amazingly, despite that steep drop, the decline is only three waves down (so far) in SPX, and TWO sets of three-wave declines in INDU (a correction known as a WXY is two sets of ABCs strung together by an intervening three-wave rally) -- so while things look somewhat promising for the C-wave decline, we (as yet) still have no impulsive (five-wave) turn to confirm that idea.

In INDU, we can clearly see two three-wave declines:

In conclusion, if SPX and INDU can form new lows, we'll have our first early hint that perhaps the large C-wave will materialize after all.  Yesterday's low does mark something of an inflection point, though, so if the markets cannot make a new low, we would have to entertain the possibility of a completed correction at yesterday's low.  Trade safe.

SPX and INDU Updates

Since last update, SPX has continued wrestling with the 3383+/- resistance zone that I called out a while back.  So far, there's no larger impulsive decline to add confidence to the near-term bear option of an expanded flat.  INDU most clearly seems to illustrate the (so far) three-wave nature of the decline:

SPX, on the other hand, now has three small impulse waves down from the all-time high.  This suggests a sustained new low could be part of a bear nest.  The bull option is for a "double three" correction (that would become confirmed if SPX makes a new ATH).

In conclusion, SPX has remained stalled in this zone, which does at least confirm the read of 3383+/- as resistance.  What it does not tell us yet is if that zone will continue remain resistance.  The more a zone is tested, the weaker it tends to become, as the market works through sell orders (or buy orders, when dealing with support).  Bears need to sustain a break of Tuesday's low -- but if they can, that would help their case greatly.  If bulls can instead power up through resistance and hold the breakout, then the near-term bear options would be reset.  Trade safe.

SPX and INDU Updates

Last update talked about 3383 +/- as the next significant resistance zone for SPX, and two interesting things happened at that zone since.  First, the futures market tested that zone and then dropped like a rock.  Cash then recovered the drop yesterday, and rallied right up to that zone, where it stalled again.  Which is where we find ourselves today.

I had some trouble with this first chart, because Stockcharts suddenly decided that the ability to save your work was a stupid feature that they've been meaning to do away with anyway, so I had to screenshot it, since I couldn't save:

I also decided it was probably time to update the long-term chart, because I haven't done so in a few months, and INDU has come very close to its second target (originally published in July):

Long-term SPX does appear to have firmly entered the green channel, which we discussed in December:

In conclusion, the market is now testing a resistance zone.  Keep in mind that even if it breaks briefly above, it will need to sustain that breakout.  Long-term, the trend remains unchanged.  Trade safe.