SPX, INDU, BKX: SPX Captures Targets, INDU Validates Preferred Count -- What Next?

Last update expected that the decline would prove to be corrective -- and by Tuesday, INDU had already made a new all-time-high, which validated the preferred count in that index.

SPX did not make a new all-time high, but did capture its preferred 2047-53 target zone, and subsequently generated a 19-point bounce.  No matter what happens from here, it's hard to complain about that outcome.

The question now is whether ALL OF wave (4) is complete.  Fourth waves are known for their complexity and unpredictability, so we have to stay alert to the possibility of a complex fourth.  This is best illustrated via INDU, as an immediate reversal lower from here would strongly suggest an expanded flat.  I'm going to keep the complex fourth as the alternate count for now, but this is a bit like saying, "I prefer the next roulette spin to land on black," since there's no law or rule that grants a simple fourth wave a serious edge over a more complex wave.

The upshot is that if there is another wave down immediately, then it will likely be a high-probability long play, because Monday/Tuesday's rally doesn't count well as a complete impulse just yet.

The main reason I'm preferring the roulette wheel to land on black for INDU is BKX.  BKX has overlapped its wave A low, and that means two things:

1.  It's probably an ABC decline.
2.  In the event it's not, then another wave down here could be very technically damaging.  Which doesn't really fit INDU's pattern for another wave down.  I suppose it's always possible for BKX to collapse as INDU is making new highs, but that seems rather unlikely.

I have to mention that because BKX has not yet overlapped the first wave in its current decline, there is still the potential for a marginal new low here -- it's just hard to see that happening with this current pattern.

And thus we come to SPX, which, as noted, captured its preferred target zone dead-center and rallied.  In fact, all I really had to do to complete this chart was move the c/(4) label about an eighth of an inch to the right (or 3.1750 mm, for our European readers)  Of course, accuracy of targets does not guarantee that the fourth wave thesis was correct, because I use a variety of tools to arrive at targets -- but it should at least have guaranteed a profit for nimble traders either way.

Due to the nature of fourth waves, and the lingering alternate count, I've noted the next potential targets in the event 2049 fails.

The main thing bothering me for equities at this juncture is that oil has fallen so far, so quickly.  This impacts some of the largest individual components of the major indices (such as Exxon and Chevron), and further impacts the banks who service those companies.  This can have a bit of a domino effect, and it remains to be seen if the price of oil will stabilize.  Interestingly, this could ultimately become one of the catalysts for the thesis I put forth in October that the current rally is a high-degree fifth wave, with a significant correction to follow.

Be that as it may, the charts still suggest we probably haven't seen an intermediate-term top just yet -- but they also suggest we may finally be getting close, at least in terms of price.  In a perfect world, I'd still like to see BKX, RUT, and NYA make new highs before it's all said and done, in order to complete fifth waves across the board.  In the meantime, in the event the market has more tricks up its sleeve, the first step for bears directly from here would be a breakdown at 2049 SPX.  Trade safe.