SPX and NDX Update: A Rally, or Just a Blip?

Yesterday, the market again traded right down into my target zone, but, as mentioned yesterday, there are now two solid reasons for shorts to be cautious at these levels:

1)  The alternate count suggested a bottom right in the target zone (as described yesterday).
2)  The wave down could also count as a complete impulse, or first wave (charts to follow).

Now, that said, the count I favor here doesn't believe the decline is done just yet.  It does, however, believe a corrective rally is due pretty much immediately.  Let's take a look at that chart (below)... the chart's a bit cluttered, but the move has reached a stage where I felt I needed to detail several points.

   
Let me stress here that this is a very, very difficult structure to label, and there are a lot of different ways to interpret the price action since early December.  I'm favoring this interpretation, but every system of analysis runs into limitations at times -- and that should be taken into consideration when placing trades.

This interpretation of the count can be knocked out with trade above 1231.48.  It should be noted again that the alternate count may very well have found a bottom on Monday, since the move off the December highs now counts very well as a complete a-b-c.  I don't favor that count at this stage -- but it remains a possibility to be cautious of, now more than ever since the structure no longer looks like it needs lower prices under that alternate interpretation.

The next chart I'd like to share is a completely different interpretation of the pattern on the S&P 500 (SPX).  I'm not favoring this interpretation, due to the internal structure of the wave marked by the call-out box -- however, I'm unable to rule it out because the gap down in that wave does make the structure at least somewhat veiled and difficult to interpret... so I feel obligated to call attention to this possibility.  This interpretation counts the move from the December 9-13 as a structure called a "running flat."  Under this interpretation, a larger second wave rally should now unfold.

I favor the first count shown over this one, by a margin of 60%.

The next chart I'm going to share is the Nasdaq 100 (NDX), and this chart is one of the reasons I'm favoring the SPX interpretation shown in the very first chart. The NDX seems to argue that this wave is not complete (barring the alternate count), and that would indicate that the SPX still has more downside left as well.  However, if the NDX trades above 2292.15, it’s all but guaranteed that the bullish alternate count is playing out, because that would create overlap of the first and fourth waves, and lock-in a very clear a-b-c pattern on the NDX decline.

Another reason I favor the first SPX chart, and the NDX chart below (which is essentially the same count), is that Monday was a major distribution day, and declines seldom find meaningful bottoms on such action.

 
This wave has been very difficult to track (and I'm frankly a bit amazed my targets have hit non-stop going all the way back to the week prior to last) -- but maybe that's the way it needs to be at this stage, if the preferred count is correct.  The market almost never makes it easy.

In conclusion, I remain long-term bearish.  The short term is a bit of a muddy picture at the moment, but I'm favoring the view that the market will see some type of brief rally at this stage before going on to make further new lows.  It pays to be alert to the possibility that I'm wrong, though, and trade above 1231.47 SPX would indicate that my favored interpretation is incorrect -- it's been a great run, so maybe I'm due for a flub.  Trade safe. 

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