SPX Update: Slight Adjustment Still Leaves the Big Picture Bearish

As I opined many times in the past, there was no new Quantitative Easing program announced by the Fed on Wednesday.  In fact, the Fed announced only one new program yesterday, titled "Operation: Huh?"  Under the terms set forth in "Operation: Huh?" the Fed has finally agreed to start openly admitting that it's basically clueless about everything.  I, for one, think this is a huge step forward, and possibly the most helpful program to come out of a Fed meeting in at least fifteen years.

The charts suggested ahead of time that there would be no fireworks on Wednesday, and both the S&P 500 (SPX) and Nasdaq 100 (NDX) wandered their way up into the target ranges I had posted in Tuesday's update.  The NDX barely squeaked in, tagging my suggested target range by only one point.  Yesterday's targets were, relatively, easy; now things get a little more complicated.

After spending a lot of time last night and this morning on cross-market studies of other indices, currencies, and a few commodities, I have switched yesterday's alternate count into the preferred role.  My preferred view is that this is wave (ii) up, instead of wave 4.  The wave 4 count has now flipped into the alternate position, and is shown on the chart by the black "Alt" labels.  If this is the fourth wave, a marginal new low should follow this rally.  If that's the case, the market is less likely to stage a deep retracement of the prior decline; in fact, any trade above 1264 would knock this count out.

If the indices are forming a fourth wave, there is no telling what they'll do.  To give you an idea of why I say this: the trading range from August until the October low was a fourth wave (of much larger degree, obviously).  If you look at a six month chart, you can see that the only thing that was clearly defined about that move, in retrospect, was the trading range.  Other than that, the indices meandered about for months, almost in a seemingly random fashion.  Due to their somewhat unpredictable nature, fourth waves can be difficult trading environments.

The two targets I like for the preferred wave ii count are 1256 and (if 1256 is violated convincingly) 1267.  I've also drawn up a simple support/resistance chart showing some areas that may create battlegrounds in the future.  This chart also highlights why I like 1267 as a possible target.

I am forced to forego the NDX chart in this update, because I simply ran out of time -- however the NDX should trade roughly in concert with the SPX.  The last chart I'll present is my more bullish alternate count, which is still hanging in there, and has actually moved up a notch to 30% odds.  Unfortunately, the market never reached the level required to knock this count out, so it continues to remain viable.  This count suggests there's one last rally to new highs unfolding now.

In all of the above cases, the expected resolution after the rally ends is a deep decline to new lows.  Once the top is in, I can start calculating targets for the each of the coming legs down.  Trade safe!

The original article, and many more, can be found at http://pretzelcharts.blogspot.com/