SPX and NDX Update: Market Appears Poised to Break Recent Lows

The market continues to try to convince us that it's strong, as it wallows around just below the 200 day moving average and a bevy of resistance lines.

I remain convinced that there is much more downside than upside left in this market over the medium and long term; and over the short-term, I am quite skeptical of Friday's rally.

Deciphering the shortest term counts is quite challenging right now, due to the series of gaps since November 28, which present difficulty in the study of the finer wave movements which I usually depend on to clarify structure. I have gone back and cross-referenced the overnight futures markets with a dozen different cash markets, but the structure still remains open to a high degree of interpretation.

The first chart I'd like to share is a big picture support/resistance chart of the Wilshire 5000, which is an extremely broad index that does a good job representing the essence of the entire market.  This chart shows the market remains pushed up against several resistance lines, as well as the 200 day moving average -- collectively, these things should be quite a hurdle for the market to push through.  (It's worth mentioning that the Dow Jones Industrial Average has already closed above its 200 dma, however the Dow has an "upward bias" due to the fact that it consists of only 30 of the market's strongest companies.) 

A close study of this Wilshire 5000 chart can be revealing.

The next chart is the Nasdaq 100 (NDX).  The advantage on this chart is that the top is quite clearly defined, unlike the S&P 500 (SPX) and some others.  On the NDX, the decline so far could be counted as a series of 1's and 2's. 

On Friday, I shared a chart with the TRIN and advance/decline volume ratio that has proved quite reliable over the years; and I discussed how those indicators were pointing to lower prices over the next few sessions.  If the 1's and 2's interpretation (annotated in blue and red) is correct, we should see lower prices over this week, quite possibly in the form of a very strong decline.   

If the market instead trades above the knockout level of 2343.10, then that blue and red interpretation is definitely wrong -- and the labeling annotated in black is probably correct, which should see the markets continue on up over the October highs (though my work is suggesting only marginally higher).

Virtually everything I've looked at suggests lower prices are coming this week, but the chart shown above pretty well illustrates why it's a difficult call -- the structure is still at a point where one could count it either way. 

The one (and virtually only) concerning statistic I see for bears right now is Friday's CFTC figures (commitment of traders), which revealed that the market is now holding its largest net short position in the Euro in 18 months. This suggests that large declines in the Euro may be unsustainable at the moment -- and as we observed last weekend, the Euro is driving the US markets.  However, at the moment, I am letting the wave structure override the Euro figures regarding my preferred view. 

The SPX chart shown below shows my preferred view that lower prices are due this week, one way or another.  The second alternate count says that wave B bottomed at the recent 1231 low.  My second alternate seems to be the count many Elliotticians are favoring, but I don't like it very much for a few reasons:

1)  The existing retracement was quite shallow for a B wave.
2)  My confirming indicators, such as the ones shown on Friday, continue to argue for lower prices.
3)  The short-term wave structure, although difficult to get a handle on, seems to suggest that lower prices are in order.

The knockout level is close enough that we should have an answer soon enough.

One thing I've become fairly convinced of is that even if the bullish alternate count is in play and has bottomed (the third alternate count), it probably won't amount to much more than a double-top. Given what I'm seeing currently, if the bullish scenario were to play out, I expect it likely that the indices would only make a modest new high above the October highs, and then reverse lower.  Again, I view it as unlikely that Thursday marked a bottom, and more likely that the market heads lower more or less immediately.

The final chart is presented for educational purposes, and shows how the decline off the high in the SPX could be counted as an impulse and correction.  I believe this is the correct count, and it would be confirmed by a break of the 1231 lows.  A break of the recent high at 1267.06 would prove me wrong.

In conclusion, I remain long and medium term bearish.  Unless and until the indices break their recent highs, I remain short term bearish as well.  Things could always change going forward, but given the market's current position, I simply don't see much hope for the bulls -- outside of the eventual potential of a marginal new high above the October highs, which might never come to fruition.  Trade safe.

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