SPX Update: Target Captured -- Inflection Time

Last update highlighted the next two target zones if bulls couldn't recover the base channel.  Yesterday, SPX captured the second of those near-term targets.

That gives the market the potential of three complete waves down (though it may need one more new low to be a three), and that means the easy money is over for the moment.

In conclusion:  In Elliott Wave, once you spot the first impulsive turn, then you know to expect at least one more impulse in the same direction.  From there, you can build in real-time and try to determine if there are still waves needed to make a complete a three wave move (an ABC) -- that's the technique that kept me looking lower from October 14 until today.  But sometimes, such as now, you simply don't know if the market wants to turn that three wave move into an impulse (five waves instead of three).

So that's how we saw this decline coming from early-on, then rode it down in real-time -- but now the market will have to decide if it wants to end on a corrective (three wave) decline, or extend that into an impulsive decline.  And in that regard, I'm just not sure. If the decline is to become impulsive, then it will still need blue 4 and blue 5 to complete a larger (black) bear (3)/C -- but I can't guarantee that happens at this stage.  If it does, then I have already sketched out the target zones for such a move.  On the other side of the trade:  If bulls want to turn it back up here, they do have that option. The first thing they'd need to do is sustain a breakout over the black channel and back into the red channel. If they can do that, then bears should probably at least be cautious. Trade safe.

SPX Update: Preferred Count Comes Through Shining

On October 14, I noted that we had our first impulsive decline since the September low, and that this signaled at least a near-term trend change, with further downside expected.  On October 23, I reiterated in clear language that "Bears Still Have the Ball," and sketched-in some 3/C target zones.  The first of those zones was captured on Monday, but it appears that was only the bottom of the micro third wave (see chart below).  Also note SPX bounced from black support back up to test the blue line from underneath:

Bigger picture... we're not quite here yet, and we'll take it as it comes, but here's something to at least be aware of -- starting with: if bears can sustain today's breakdown:

In conclusion, as we've seen so many times over the years, an impulsive decline arrived early to announce the change of trend, and the market has since responded.  We are now nearing a downside inflection zone, so we'll have to see how the market reacts to the break of the red base channel on the first chart.  If it's going to bounce, it would typically do so fairly soon after that break.  If it can't recover the base channel, though, then it may enter an acceleration channel and the speed of the decline could increase.  The next couple sessions will be important.  Trade safe.

SPX Update: (Exact Minimum) Upside Target Captured...

Last update, I typed "3449" every time I meant "3549" (hopefully readers knew what I meant!) -- but other than that, no change.  The overall thrust of the last update was that it appeared SPX had formed a b-wave low, which meant that any bounce was likely to be corrective in nature.  I mentioned (in the body of the article) that the lowest price point where a c-wave rally could complete was ~3467 -- and that may be exactly what happened, as SPX peaked at 3466.46 before reversing lower.

It's still possible for wave 2/B to become more complex (or for the wave to 3466.46 to be wave 1 of C), though, so be aware of that.

In conclusion, other than to correct last update's typo, there's no material change.

Also, on a personal note:  I almost hate to do it with the election pending and the potential market fireworks that could go with it if we end up in a chaotic "nobody will concede" post-election situation scenario (likely), but I have some things going on beyond just the market (if you can imagine!) and will be taking about a week and a half off from the updates, probably starting next week sometime (exact schedule to be determined).  

Trade safe. 

SPX Update: Bears Still Have the Ball

Last update noted that we probably had to continue giving the edge to bears, and SPX has made a new low since.  It then proceeded to bounce right at the previously-noted blue support zone:

The only thing that's slightly bothering me on the chart above is the diagonal shape of the decline -- but I'm having a tough time seeing how the 3549 high could be a b-wave, so I'm ignoring the diagonal shape for now (however, on the outside chance SPX clears 3449, then we'll know why).

Also be aware that there's also a count where the (presumed) c-wave rally could end near ~3467, as discussed in the forum yesterday.

Zooming out to the daily chart, we can see SPX is back below the larger pivot.  We can also see that blue 3/C from the chart above could take SPX roughly to the black trend line on the chart below... which might then be "decision time" for whether the decline from 3549 is going to be an ABC or a larger impulse that takes the market south of 3209:

In conclusion, as long as bears continue to hold 3549, we're going to continue giving them the edge with this pattern.  It's worth noting that 3/C on the first chart could take us right into Election Day and align with "decision time."  A contested election (which seems rather likely no matter who loses) could potentially stretch the decline into a larger third wave that takes the market south of 3209.  Trade safe.

SPX Update: Bears Do Their Thing

Last update noted that the last bounce had stalled just shy of the first key overlap, which kept bears in the game, and gave 3470 as the first warning zone for bulls.  SPX sustained a breakdown at 3470, and then proceeded to drop another 50 points to the next support zone.  This puts bulls in an uncomfortable position.  Although I can't entirely rule out a WXY (bullish corrective wave), we probably have to utilize Occam's Razor and favor the most parsimonious explanation, which is that we've now seen a larger impulsive turn (which suggests bears continue to hold the ball for now).

On the hourly chart, bears overlapped their first meaningful overlap, but bulls did manage a bounce at support, which is another reason we shouldn't entirely discount a WXY just yet:

In conclusion, the easiest conclusion is that we've seen an impulsive turn from the gray (2) high (3549), though I wouldn't exactly call that "straightforward" at the moment.  From an aesthetic perspective (and yes, there is an aesthetic to charting), I'm not crazy about the presumed wave 4 of the decline being so much larger the presumed 2, so I'm not able to completely disregard the potential of a WXY.  

That said, we probably have to give the slight edge to bears unless bulls can reclaim that 3549 high.  Be aware that the most bearish outcome of that would mean a retrace all the way back to (and below) 3209.  The most bullish option would be that the decline from 3549 is Wave A of a pending ABC, with a bounce to be followed by another similar-sized leg down.  (And again, everything in the prior two sentences is predicated on this NOT being a WXY decline.)  Trade safe.

SPX Update -- and More

Off-topic from the immediate market, but very much on-topic for the long-term market:  What should you do when you see your society is floundering?  What should you do when you see your society embracing destructive ideals under the guise of "good"?

Should you stand aside quietly, and hope the ship rights itself?  Or hope someone else addresses it?  Or hope it just goes away on its own?

Or should you speak up and risk upsetting someone?

I've decided I should speak up.  Not that I want to.  I absolutely do NOT want to.  Especially in the current environment, where division is rampant, where everyone is on edge, and where a certain percentage will shut down (intellectually/emotionally) the instant I wander outside the boundaries, and some percentage will make no effort whatsoever to understand what's being said.  They may even choose to take offense.

But I believe I see at least part of the reason division is increasing (hint: as with most things, the problem is not what "the majority" are telling us it is.  If the majority had it right, then I wouldn't even need to discuss this, because they'd have already fixed everything.).  

And I believe that unless this trajectory is halted soon, division will continue to increase until we devolve into irreconcilable tribalism.

I thus believe I have to speak up.  I've already put it off for about six months.  The world isn't getting any better, though.

Where to begin?

Should we start with the Central Banks?  What have they encouraged for the past couple decades?  Rampant speculation, certainly.  But more than that.  We need to get below that, to the root.  The roots give birth to everything.  The reason "unintended consequences" take the masses by surprise is NOT because you can't spot those consequences ahead of time -- you typically can spot them, if you look two or three levels deeper -- it's because most people look at the surface of the issues.  You won't find meaning, and you won't find the future, at the surface.  You'll find it at the roots.

Ignoring human action and motivation is folly.

Let's draw an example using the aforementioned Central Banks.  When the Fed punishes savers by keeping interest rates artificially low for an extended period of time, what behavior are they encouraging?  What mindset are they encouraging?  What mindsets and behaviors are they punishing?

For one, they are punishing people who are conscientious.  Those who try to "save for a rainy day," those who try to minimize risk, and plan for the worst life might offer, are punished.  Meanwhile, those who engage in risk-taking are rewarded to an unnatural degree.  And more importantly, those who maximize risk-taking never seem to have to face the consequences of their malinvestments.  They are bailed out -- they are thus never "punished."  

The Fed has created an unnatural environment, one that punishes thrift and rewards high-risk hedonic behavior.

If we were to think in Darwinian terms, the Fed has creating a playing field that is now selecting, promoting, and propagating an entire generation based on specific traits.  Managers who take on exceptional levels of risk are rewarded; managers who practice caution are punished.  

So yes, on one hand, it's "just financial" -- but it's more than that, isn't it?  The Fed is handing success to people who will not fare very well in more "typical" environments (where high-risk behavior often results in high losses).  And this is driving the people we'll need (in the future) away from being promoted.

So who has been rising to the top for the past couple decades, in this environment?  What type of personalities will be in control when the seemingly-endless party finally ends?

That's right:  The exact WRONG people to deal with a risky environment.

When the party ends, we're going to want cautious, conservative, and conscientious people in charge -- but those people have been driven out.  They have been out-competed based on the current environment.

This is what I mean by looking at the roots.  We can't just look at the surface (what most people do), we have to examine and anticipate the epiphenomena as well.  In this case, the Fed is doing more than creating an unnatural environment -- they are unnaturally altering the hierarchies of the future environment.  And not for the better.

But our problems don't end there.  They probably don't even start there.

Our problems run deeper.

Because a strong society can recover from financial blunders, grow, and become stronger.  A weak society will not.

What is society?  In a sense, it's a contract, not unlike (at the micro level) a marriage.  We all agree to behave in certain ways -- for example, I agree not to light your house on fire, and you agree not to shoot my dog -- and we all further agree that people who break those rules should face some sort of punishment.

There are other rules in society that are not legal, but are spoken or unspoken social contracts.  Such as: It's probably not illegal for me to cut in line at the supermarket, but nobody is going to be too happy with me if I do, and it may even lead to a physical confrontation from someone behind me.  That's a pretty meaningless example in the grand scheme of things, but there are other things happening now that are not so meaningless.

One of those things is the stifling of free expression.  Did you know you can now get fired for "liking" the "wrong" thing on Twitter?  And I'm not talking about liking something crazy, I'm talking about liking something that would have been considered commonly-accepted knowledge a mere decade ago.  (It's gotten so ridiculous that I'm quite sure I can't even give an example without offending someone.)

So, once again, what are we (as a society) rewarding?  And what are we punishing?  Because through this we can discover:  What are we teaching our youth?

Well, for starters, we're teaching them that the world is something other than it is.  Beyond human beings, the world is actually quite a hostile place, in the middle of an incredibly hostile universe.  Life isn't "safe."  Prior to the last 120-odd years or so, humankind spent most of its energy struggling just to survive against the constant onslaught of nature.  People were routinely killed by bacteria, by heat, by cold, by wild animals, by unexpected weather, and so on.  

As one example, antibiotics have only been in use since about 1936 -- that's only the span of one human lifetime -- and prior to that, a massive 30% of all human deaths were caused by bacterial infection.

We seem to have forgotten how powerful nature is, though, and how truly humble we are in the face of its reality.  We forget that at any moment, something as common as a single comet could wipe out most life on Earth.  We forget that a coronal mass ejection could take out the North American power grid for (according to FEMA) a decade.  We forget that a pandemic could wipe out a massive percentage of the population (we got lucky with Covid-19, which has a better-than-99% survival rate -- even so, according to the Wall Street Journal (Aug. 20, 2020), a virus with the spread of H1N1 and the mortality rate of Covid would likely have resulted in 2 million dead.  So we got lucky in several ways.).

Point is:  We have managed to impose order on the world for a few generations, but we have not done this "by ourselves" -- we've managed this only because nature has been extremely accommodating.

We are currently living in what is objectively the safest, most prosperous time in human history -- yet from 1999 to 2017, the U.S. suicide rate increased by an astounding 33%.  Clearly, we are failing to pass some key pieces of wisdom, some key coping mechanisms, forward.  In fact, given that suicide is not simply holding steady but increasing, it appears likely that we are actually doing the opposite, and teaching our youth at least some ideals that must be very damaging to the human psyche.

In future pieces, I may attempt to examine what some of those ideals might be.  (Even though it's pretty much guaranteed that I'm going to offend someone.)  As I said, I don't want to do this -- I'd rather just make jokes about Jay Powell and not risk offending anyone (well, besides Jay Powell) -- but I feel this is too important.

I'll leave it at that for now.

*****

Looking at the charts, we can see that the market must have read the prior update, as it stalled perfectly at the first overlap (thus keeping all options open for now):

In the prior update, I wrote:

As we can see on the chart above, bulls have not yet overlapped any key levels, so it is still technically possible for the bounce to be a fourth wave.

That remains true, for now.

Stepping back, we can see that the rejection at the first overlap (above) then led SPX down to the bottom of the red trend channel (below).  It's going to open this morning with a bounce off that support level:

In conclusion, everything discussed in the prior update remains active today.  It's worth noting that the decline from Friday's high to Friday's low is only three waves down so far (meaning it's a POTENTIAL abc) -- so, using ES as our guide, that suggests that the ~3470ish zone (cash) is the first downside warning zone for bulls, while Friday's high (the first overlap) remains the first upside warning zone for bears.  Trade safe.

SPX Update: Market Behaved Exactly as it Should Have

Wednesday's update predicted another leg down would be forthcoming:

SPX has rallied back to retest the all-time high, and does appear to have formed a small (50 point) impulsive decline from its most recent high. This suggests bears have the first chance for a turn since the rally from 3209 began. Whether that turn will be a simple ABC to be met with new highs after, or the start of something larger, remains to be seen. (All presuming that first 50 point leg is indeed an impulse; to be confirmed or denied by the market directly).

That presumption was correct, and that read was, of course, confirmed by the market.  On Thursday I posted a quick update with the micro (one-minute) wave count, and wrote:

Note that the end of day rally yesterday was likely wave 4 of either C or 3, so that makes this morning's gap down part of 5 of C/3 -- which means the larger decline is not yet impulsive and would need a larger 4/5 to become so.

That count (which I posted in the forums prior to yesterday's open) was also confirmed, as the market seems to have completed wave 5 of 3/C at the open, then spent the rest of the day bouncing:

As we can see on the chart above, bulls have not yet overlapped any key levels, so it is still technically possible for the bounce to be a fourth wave.  Yesterday's low is currently the dividing line between an ABC down from 3549 (it's three complete waves down) and an impulse down (if it were to make a new low).  Bears would need the impulse to suggest a larger trend change.

Bigger picture, if there's no new low, the decline could fit as blue 4 (there are other ways to count this, though -- but roughly speaking):

In conclusion, the last two wave counts have both proven out, and yesterday's low marks the inflection point for an ABC corrective decline that keeps the uptrend intact -- or, if a new low shows up, the potential of a larger impulse down from 3549.  As simply as possible:  No new low would mean bulls keep the ball for now, while a new low would likely shift it into the bear court for at least the immediate future.  Trade safe.

Just a Quick Bonus Thursday Chart for Edumacashunul Dolphins (Porpoises)

Yesterday's call of an impulsive turn from 3549 and another leg down has obviously proven out -- not gonna say much else here, just going to reprint what I'd written with this chart in the forums:

Someone asked me to post a micro count showing why I called a turn yesterday... I had to do up the chart special, because I rarely feel the need to break these down anymore (though sometimes) -- I typically just eyeball the wave and I guess experience does the rest. On Tuesday night, one glance at Tuesday's chart led me to believe we'd seen an impulsive decline down from 3549. Considering it's the first time I've called an impulsive decline since the bottom at 3209 (340 points!), I guess experience, as they say, counts for something. ¯\_(ツ)_/¯

Note that the end of day rally yesterday was likely wave 4 of either C or 3, so that makes this morning's gap down part of 5 of C/3 -- which means the larger decline is not yet impulsive and would need a larger 4/5 to become so.  Trade safe.