SPX and INDU: Counts Confirmed, but It Brings No Joy

Futures are limit down tonight, and oil crashed (again).  Neither of these things come as a surprise here -- on the forum, I posted on Friday that it was high probability Friday's low would fail directly, and that we could see a large gap down on Monday (the market created a glaringly-obvious b-wave low during Friday's session).

I haven't updated my oil forecast in a year because there's been no change -- my standing count has been that the last crash was the bottom of wave 3 and that a new low was likely still needed.  I first called the top in oil back in 2011, when oil was still trading over $100, and gave a price target of $25, which everyone thought was insane -- but here we are now nearly 9 years later, and the "smartest guys in the room" have finally caught up:

Welcome to the party, I guess.

Incidentally, I called the bounce from 26 to 55, then adjusted my target higher in real-time to 70-72, then called the secondary top in oil as well (I was a little early, but within 4 points), back in May of 2018.  Considering Goldman Sachs apparently missed the top by around 40 points in the wrong direction, I consider that pretty good.  For posterity, here's the last chart I published on oil, in 2018 (it's marked 2019 because, while I can read a chart, I apparently can't read a calendar):

All of this begs the question:  Why isn't Goldman paying me an 8 figure salary?  We may never know.  But what we do know is that the system is going to be getting very stressed now.  

And all of this has left me in a pensive mood.  I have three children; my oldest is in her first year of college.  My youngest is still in grade school.   And the system is garbage.  We all know it.  We've all known it for years.  But the endless cycle of debt and booms and busts has, more or less, worked for the past 50 years.  The problem is, those have been 50 REALLY GOOD YEARS, in terms of humanity's struggles.  We haven't faced any true existential crises in that time.  We haven't faced extinction-level event asteroids, or massive solar flares, or, say, a killer virus that spreads before symptoms are present.  

In fact, we've become so spoiled by these prolonged good and prosperous times that we have to invent pretend crises, and the politicians repeat them every election cycle.  "Oh, the climate crisis, yada yada."  Apparently these people have never looked at the long-term climate of Earth long enough to learn that we are in living in one of the most stable and life-conducive climates of the past several hundred thousand years.  I mean, the end of the last glacial maximum was only ~21,000 years ago, and since then, sea level has risen 400 feet.  But, of course, if it rises another few inches in the next century, we're all going to die (insert "rolleyes" emoji here).

Even short-term, one doesn't need to look back very far (in geological time) to find TRUE climate crises:

Anyway, don't get me sidetracked into this, because I've studied climatology for the past two decades and have literally hundreds of gigabytes of peer-reviewed scientific papers and historical weather data stored on my hard drives, so I could probably write a book on it at this point.  Suffice to say that most what you hear on the news is NOT science, it's hype and superstition designed to get your attention and sell advertising -- it is not designed to inform you in any way, shape, or form.  Most of it is not even mainstream science.

The point I'm getting at is that humans, when they have no true struggles, tend to invent pretend struggles.  It seems to be in our nature to make our own lives seem difficult -- like we don't believe we deserve our lives to be without struggle.

And we've had a long, long stretch of prosperity to the point that few people alive today have (as a collective, not individually) known struggle the way, say, the generations that fought World War II, and lived through the Great Depression did.

And my larger point with all this is that -- during this extended run of prosperity -- we've invented "new" systems that work DURING THE GOOD TIMES.  These systems have not been tested in bad times. 

These systems will fail in bad times.  Again, many of us have known this for years -- but try telling the guy who's hitting jackpot after jackpot on the slot machine that if he keeps at it, he's going to lose all his money.  He won't listen -- not as long as the jackpots keep rolling in.

We're stupid that way.

Anyway, I got to thinking about all this because my long-term count has us approaching the end of Cycle Wave 5 -- and the end of Cycle 5 marks the end of a higher degree Supercycle Wave.

And the end of Supercycle rallies is a huge deal.  It's world-changing.  By my count, even the Great Depression was only at Cycle degree.  Imagine something an order of magnitude worse, and you have Supercycle degree.

I don't think we're there yet (I actually have the year 2025+/- as the window).  But what's going on now got me thinking.  More in another update, perhaps.  Let's look at the charts.

First up, the near-term count that Wave 4 (or Wave A of 4) had completed will be confirmed at the open:

Higher degree:

An even longer-term look, this time in log scale:

And a similar chart, for SPX, which has a better channel -- and a brief discussion on Cycle 4 and 5:

Finally:

In conclusion, there's not much for bulls to grab onto here yet.  C down is still unfolding, and could even have much farther to run.  Do keep in mind that this is projected to be Wave 5 (since we just had Wave 4) -- so if it doesn't extend, it could complete a higher degree waveform, which could either mark the bottom of (larger) Wave 1 of C, or ALL OF C (for the alternate bull count).  Trade safe.

SPX and INDU: No Material Change

Last update expected we were at or near the end of a complete wave, and it appears that was correct.  The question now is whether that peak will mark the end of Wave A of 4 or ALL OF 4.  My gut instinct is that it's Wave A of 4 and that we will retest the zone near the swing low (plus or minus), then form a second rally leg, but it's hard to say if support will materialize during waterfall decline waves, so we'll simply have to play it by ear.

This chart has proven handy, with SPX's break of the median leading to the projected bounce, and that bounce now retracing.  Past breaks have led to more sideways action before heading toward the channel bottom, so the overall bounce may not be done yet:

Finally, SPX stalled after back testing the broken channel:

In conclusion, no material change since last update.  SPX has likely either completed ALL OF Wave 4, or completed Wave A and is working on Wave B now.  I'm leaning toward this being Wave B (or Wave 2 of the alternate bull count) with another rally leg to follow, but this "ain't exactly your father's market," so we shall see.  Note that SPX will be testing a possible support zone right at the open today, so we'll be watching to see how it handles that.  Trade safe.

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.