SPX Update and More: Why I Haven't Yet Joined the Long-Term Bull Camp, Part I

We're going to move through this article starting with the short-term and ending with the long-term.

Friday performed exactly as expected, "choppy sideways with a slight upward bias."  The second part of that prognostication projected at least a short-term turn would start either Friday or Monday.  Nothing happened on Friday to change my outlook, in fact, the action seemed to confirm it. 

The preferred count isn't certain whether that turn started on Friday or not.  There may or may not be a little more out of the market as far as a new high, the charts are unclear.  The preferred count got us into the 1400-1408 target range, and sometimes it's just not possible to narrow things down to two or three points, except in real time.  These updates obviously don't have the benefit of being written in real-time while a move is unfolding, but instead examine static snapshots of the market.

Some indices are giving the appearance of completing fourth wave corrections, though this isn't a foregone conclusion.  Sometimes a nest of 1's and 2's can look like a fourth wave.  If this is a small degree fourth wave, then there might be one small pop left, but there shouldn't be a ton of upside before a correction: 1410-1412 SPX would be about the max upside expected for this leg; ideally less.  Note this is a short-term expectation.  The question I'm still unable to resolve is whether this presumed correction will simply head down to the high 1380's/low 1390's before resuming upwards, or whether it will mark a much larger turn.

Either way, I do believe an intermediate-degree turn is getting close, so I think the next bigger turn will finally be something that bears can sink their teeth into.  In a moment, I'll give some more detail on why I don't think the rally will go on forever, but let's look at the 5-minute SPX chart first.

Zooming out a bit on the SPX, it's quite difficult to sort the black from the blue count, leaving me feeling a bit black and blue mentally.  One thing the blue count has going for it is the fact that it would allow a much cleaner 2-4 trendline.  We're simply going to have to wait and see the form taken by the next decline to help sort one from the other. 

It's also possible that the fourth wave triangle I was mentioning could be blue wave 4.  I think that's less likely, but if the market were to shoot straight up out of that triangle and head above 1420, then it has probably gone directly into blue wave 5 without passing "Go" or collecting $200.  Again, a move like that would surprise me -- but I've been surprised before.

Something the black count seems to have going for it is the RUT (and others, such as NYA) which appear to have completed, or are close to completing, 5-wave rallies.  RUT and NYA charts below.  I originally published these charts in this update, and so far the markets have performed right in line with those charts.

Another interesting longer-term relationship in the NYA is shown below.  The NYA has now perfectly reached the price expectations of the triangle pattern formed in November and December.  This triangle is also one of the reasons I'm not long-term bullish as of this moment -- triangles almost always occur as the penultimate wave in a move.  In other words: they occur as the second-to-last wave -- which means they're found either in the middle of, or late in, a waveform, but very rarely early in one.

Let's use that as a segue into some of the reasons I haven't yet joined the long-term bull camp. 

Some of the charts below are charts I've shown before, others are "new to you." 

Exhibit A is the daily MACD on the Dow.  

Exhibit B is the Dow Bullish Percent Index (BPINDU), now descending from a massive overbought condition.

Exhibit C is the Nasdaq Composite, which is still beneath its old secular bull market trendline.  This trendline is 38 years old, so it's as well-established as they come.

Exhibit D is the German DAX composite, which has not yet exceeded its 2011 high -- and also formed a much deeper retracement off that high than SPX.  The depth of that retracement tends to rule out the more bullish counts -- and the DAX and SPX generally trade with a very high degree of correlation.  It's hard to imagine a world where SPX rallies significantly while DAX declines, or vice-versa.

And finally, a series of chart studies on Chevron.  Of course, Chevron isn't the whole market, by any means; however, it's one of the largest companies on the Dow and comprises nearly 2% of the SPX -- so it's hard to imagine a bull market running the distance without the participation of companies such as Chevron.

This weekend I studied more than 20 years-worth of Chevron charts, at 8 different degrees of trend.  That took about 5-minutes.  Ha!  I wish.  Anyway, Chevron appears to be forming a textbook ending diagonal, which suggests that prices will return to the level at which the diagonal began -- at the minimum. 

The chart series starts with a 20-year view, and gradually zooms in down to the 30-minute level.  The chart annotations contain all the info one needs, with the exception of the mention that while the alternate count suggests a 25% decline, the preferred count suggests a much deeper decline of 50% or more.

In conclusion, I'm not certain if there's a little more upside coming before at least a small turn, though if there is any, I wouldn't expect much upside.  That's the first question the market needs to answer.  Once that question is answered, then we can take a look at the shape of any forthcoming decline and try to determine if there will be another leg up, or if that's all she wrote. 

Because of the NYA and RUT, I'm still leaning toward the idea that this is a complete five wave rally, and the turn will be a larger turn -- here where virtually no one expects it.

Beyond that, examining the bigger picture, I currently see no reason to be long-term bullish.  The counts still allow for the possibility of a correction and another thrust up, perhaps into the mid-1400's -- but it does appear that the time for a bigger turn is finally drawing near.  Trade safe.