A Christmas Story -- Reflections on What Matters

With Christmas upon us, I'm going to depart dramatically from my usual format, and share a true story from my childhood.  I'm spending the holiday with family (updates will be sporadic or non-existent for the next two weeks), and due to certain events which have transpired in my life over the past couple years, this weekend I've found myself increasingly lost in reflection -- and largely uninterested in the market.  This has left me with a strong desire to share something that goes beyond the market.

Though the true events recounted here began one spring many years ago, this is my Christmas story.

*****

It was an unusually beautiful spring; I was 11 years old, just about to turn 12.  Two years prior, within a week of my 10th birthday, I had been run over by a car and nearly killed -- but that's a story for another time, perhaps.  By the approach of my twelfth birthday, I had pretty much healed up okay from the car accident, and (for a change) my mother was the one going to see the doctor and I was accompanying her. She had some small, inexplicable lumps beneath the skin on her left arm.  The doctor decided to run some routine blood tests. None of this seemed like a big deal at the time.

A couple weeks later, my father sat me down and explained that my mother had leukemia. He told me this was a type of cancer that affects your bone marrow; he described it as "cancer that infects your whole body." He explained that there were two main forms of leukemia: acute and chronic. Apparently acute leukemia was the grimmer of the two, and virtually incurable.  It was also the form my mother had just been diagnosed with. She was 35.

Not long after, my mom was admitted to the hospital to undergo aggressive chemotherapy. She was to remain in the hospital full-time for several weeks; and the doctors inserted a catheter directly into her heart, which fed her a constant-drip of chemicals from an IV bag.  Apparently, this treatment weakened her immune system considerably, because when we visited her, we had to wear surgical masks and wash our hands a lot. The first time I saw her, it was a difficult sight: My mom was a kind, loving woman, but she was also very strong and tough. To see her pallid in a hospital gown, with needles and tape stuck all over her... it broke my heart.

One visit which stands out in my memory involved my little sister, who was five at the time. After we went up to the hospital room and said hi, I took my sister down to the gift shop and we purchased a tiny stuffed bear for my mom. When we returned to the room later, my father was virtually screaming at one of the nurses, and there was now a great deal of blood on the floor and sheets: my mother’s blood. My dad saw us and told us to wait in the hall -- but later he explained to me that the nurse had been changing my mom’s catheter and had made a mistake somehow, so that her blood was pumping directly out of her heart and all over everything. This must have been a frightening sight for my mom. No wonder dad was so angry.

Another vivid memory I have is when they let her out on a day trip to come visit us at home. She had to wear a surgical mask the whole time, and I still have a picture of her standing in the living room, just like everything in our lives was normal – except she’s wearing the mask, and her hair is very, very thin. At the time, she begged me not to take the photo… but today, I’m glad that I did.

Throughout this ordeal, my father would remind me that my mother’s disease was terminal and virtually incurable, and that I would be wise to begin accepting her fate. I refused to. I felt that giving up hope would be an act of betrayal of my mother – as if giving up hope meant giving up on her. Deep down, I think I secretly believed that my positive thinking might somehow make her better.

A few months later, the doctors announced -- with much fanfare -- that her leukemia was in remission! She had miraculously beaten the odds. My father seemed as surprised as the doctors. The only person who wasn’t surprised was me, and I still remember my father remarking, “You knew she’d get better the whole time, didn’t you?” I was glad that I hadn’t given up hope, as if my hope had somehow aided her recovery.  

Everyone was elated, and the entire extended family got together to celebrate.  In the midst of that happy moment, it was hard to believe that life could get any better. Of course, none of us could have foreseen that even though mom’s leukemia would not return, she would be dead before the year was out.

*****

It was December 23rd – the eve of Christmas Eve. The tree was lighted and trimmed, the house was decorated, and the overall mood was very festive. My aunt Lori (my mother’s sister) and my Uncle Jack had taken my parents out to dinner, while my favorite uncle, John, was staying at home with my sister and me. My mother, at thirty-five years old, was the eldest child of my grandparents, while John was the youngest, at fourteen. The end result was that John was only two years older than I was, and we had spent a ridiculous amount of time together since the day I was born.  We felt (and treated each other) more like brothers than like uncle and nephew.

Ostensibly, we were supposed to be baby-sitting my now-six-year-old sister, but we'd spent the majority of our time ignoring her, and were instead choosing to play around on my dad’s new IBM PC.  This was in the days before Windows was invented, and I had become quite the self-taught programmer of Basic A.  We were working on creating a “choose your own adventure” style fantasy game. The computer was in the basement, where my dad kept his home office, so we had quarantined my sister to her room. We hoped she wasn’t getting into any trouble.

When my parents finally came home from dinner, my mom announced their return from upstairs, and I shouted my quick hello back up to her, from the bottom of the basement stairs. Then we resumed our programming.  We were in the midst of a storm of creative genius, after all, and could hardly be bothered to run all the way upstairs just to greet everyone.

Maybe twenty minutes later, my dad came racing – sprinting – down the stairs and grabbed the phone on his desk. His hands were shaking, and he was crying as he dialed the line.  John and I had been laughing about something when my dad bolted into the room, so were literally frozen mid-laugh and instantly tense, trying to figure out what was happening.  Then my dad started speaking urgently, in a rough and trembling voice I didn't recognize as his: “I need an ambulance right away, my wife just dropped to the floor…” John and I didn’t hear the rest; we were already running up the stairs.

We got to the top of the stairs and stood there in the kitchen for a moment, confused about what to do next. We heard a horrible sound coming from the next room – a loud, raspy sound that was part groan, part rattled breathing. I didn’t know what to make of it. To me, it sounded like someone choking on the air in their own lungs.

Walking very cautiously now, frightened of what we might find, we rounded the corner that led to the family room. We stopped in the threshold, and my mind tried to make sense of what I was seeing. My mother was lying on the floor, and my Uncle Jack, who was a medical intern, was kneeling next to her. As he pushed down on her diaphragm, the horrible choking sound I had heard earlier escaped from my mom’s motionless lips. I couldn’t understand this at all; at first I thought Jack was intentionally hurting her. My brain didn’t register this as CPR. We watched, stunned, for a few seconds before Jack looked up, saw us, and shouted, “Jesus Christ, Lori, get the kids out of the room!” My aunt looked as shocked as we were. She wandered over, her eyes glazed, and led us back to the kitchen. My sister joined us from somewhere, and the four of us sat down at the table.

“What’s happening?” I asked Lori, “Is mom choking?”

Lori paused for a moment before replying, “Your mom is having a heart attack." I'm tempted to say this was stated as gently as possible, but it was clear Lori was badly shaken-up and it was said more with a tone of "this-can’t-be-happening" disbelief.

I wanted to know if mom would be okay; Lori hoped so. I wanted to know how it had happened; Lori said they weren’t doing anything, just watching TV, when suddenly my mom fell over, off the couch and onto the floor.  

I wanted to know why.  Lori said the chemicals from the chemotherapy had weakened my mom's heart.

Shortly thereafter, the paramedics arrived. We couldn’t see what was happening, because someone had shut the parlor doors that led out of the kitchen. So we sat there without speaking, almost holding our breath; we were all listening intently, trying to catch clues that might tell us how the situation was progressing. 

There were broken bits of sound coming from the other rooms -- sounds that didn't belong in our home at Christmas: strangers talking in urgent voices; the wheels of a gurney humming across the wooden floor; the occasional static-beep of a walkie-talkie.  

I have no idea how much time elapsed, but throughout this entire ordeal, none of us spoke a single word.

After a time, we heard what sounded like hundreds of loud footsteps: first pounding, then muffled over my mom’s prized oriental rug, and then pounding again across the wood floor and out of the house. Finally, the ambulance siren: loud at first, but gradually retreating... and eventually swallowed completely by the cold winter night.

The house was suddenly very quiet and lonely.

My dad opened the parlor doors from the other side, and it was almost a shock to see the doors could be opened at all.  They had become a wall in my mind -- the impenetrable barrier between those who could do something to help, and those who waited helplessly.  

My dad sat down with us briefly.  Then he announced he was headed to the hospital, but that everything would be okay: The paramedics had gotten mom's heart beating again! I breathed the most heart-felt sigh of relief I'd ever experienced.  We all did.  Then we looked around at each other and smiled in reassurance: Everything was going to be alright after all!  I imagined that tomorrow we'd get to visit mom at the hospital (a scene I could picture with ease), and things would be fine -- maybe my sister and I would even buy her another stuffed teddy bear.  It could become a family tradition!

It had been a long, exhausting evening, and it was pushing on toward midnight. John and I retired to my room, and I fell asleep almost instantly.

*****

A few hours later, I was awakened by my father's presence. He was sitting on the edge of my bed, in silence at first.  Only a thin sliver of light seeped in through my slightly-open bedroom door, yet I could see that his eyes were moist.  I became aware of the murmur of other voices coming from the living room.  It was still dark, so I knew the sun hadn't risen yet; I glanced at the clock: 3:15 a.m.  It was officially Christmas Eve.

“How is she?” I asked, “How’s mom?”

He put his hand on my shoulder, and his hand trembled.  It was obvious he was in pain, and wrestling with exactly what he should say.  Finally, he said simply, “I’m sorry, Jason." His voice cracked as he continued, "Your mom didn’t make it.”

I wasn't ready to hear this, and my heart certainly wasn't willing to accept it immediately -- so my mind feigned ignorance and pleaded misunderstanding.  

I asked him, “What do you mean?”  As if there could be any different meanings to his words. 

There had to be some better meaning -- a good meaning.  My question was a delay tactic.  It was a way to live one final instant, however brief, in a world where everything was the way it should be.  Our family was going to celebrate Christmas tomorrow!  

I began picturing it immediately, before he could answer and destroy everything:  Mom would unwrap the humble presents I'd give her, while graciously pretending they were exactly what she’d wanted... and actually, I was pretty sure she'd genuinely like the tea pot I bought her (with my own money), because it matched her favorite tea cups.  I'd waited anxiously since Black Friday to find out if she would like it -- finally I would know for sure!  Then in the afternoon, we'd drive over to see grandma and grandpa...

“Your mother died at the hospital,” he said softly.

And with those six quiet words, there was no further escape.  The good world I so desperately wanted to keep living in began to crumble, reducing itself to pieces at an alarming speed.  I was left grasping at its remains, as my twelve-year-old mind recoiled from this new reality and sought frantically to put the old world back together. 

But as you learn in those life-shattering moments, those broken pieces of your old world are ice-cold and razor-sharp; so the tighter you try to grasp them, the more they cut you and make you bleed.   You are reflexively forced to release everything you once held so tightly, and you end up watching helplessly as the dearest parts of your life fall from your grasp and shatter.  In the end, you are left staring at a pile of shards -- the remnants of your broken life.

It is during this moment that you begin to realize your old, familiar world will forever remain beyond repair.

Feeling as if someone just pulled the chair out from under you, you begin a sort of internal free-fall into the fresh hole in your heart where your loved one used to be.  And while you may not yet grasp the complete and utter finality, the cold reality does truly begin to hit you -- and with gale force.

Your first instinct is to deny the situation, but deep down, you understand there is no escape from this new reality.  There is no way to fix it.  What is happening is not optional.  It does not even qualify as the "only choice" -- you are given no choice at all.  

I suddenly realized there was no way to avoid this new fate.  The life I recognized was gone.  Forever.

At twelve years old, I didn’t have a reaction for this realization.  In my struggle to process these intense feelings, my emotional gears were exceeding their design capacity, and they began to grind together in a horrible, increasingly unbearable cacophony.  I searched frantically for an internal escape valve, an overload switch, an emergency shutoff -- something. 

Then suddenly, almost as quickly as it had begun, my emotional machinery jammed entirely.  Everything froze up.  It turns out some feelings are so intense as to be self-limiting. 

There was internal silence, and an unusual sort of peace crept over me. I was shocked into a deep, hollow numbness.  I gradually became aware that I was still lying in my bed, in my dark room -- and it was still Christmas Eve. 

I felt as if I'd just traveled a thousand miles over a hundred years.  But my dad hadn't moved and, despite my rapid and intense internal journey, he, too, was still there on the edge of my bed.  Nothing had changed from a minute ago.  

Everything had changed.  

He asked if I was okay, if I needed to talk, and I said flatly, “No, I'm fine. I’m going back to sleep.”  My complete lack of observable reaction probably confused and concerned him, so he continued sitting there for a while, trying to be reassuring.  I wanted him to leave so I could fall back asleep -- maybe when I woke up later, life would have magically become normal again. I noticed that John was no longer sleeping on the floor.  There were still numerous voices, and the sound of someone crying loudly, coming from the living room. Eventually my dad stood up reluctantly and walked out of my room, softly closing the door behind him. 

I was alone in the darkness.  I remember lying on my back and staring up into the dark void where I knew my ceiling was.  I didn't want to believe my dad; it just didn't seem possible.  How could life change this dramatically in the span of only a few hours?  But I knew it was true -- intellectually, if not emotionally just yet.  

And when I finally did shut my eyes, the dark void remained. 

A short while later, I heard him yelling at someone, “You never showed her this much love when she was alive!” Then I fell asleep.

*****

At the funeral, all I could think about was how I never went upstairs to greet her when she came home.  I desperately wanted to see her smiling face again, to give her that one last hug. But I was too busy with some stupid computer program. I felt somehow cheated -- not by fate, but by my own doing.  She had been alive when she came home that night, and I had missed it.

And I had missed her last moments on earth not due to some circumstance beyond my control, but because I chose not to spend that time with her. I learned a valuable lesson about making choices, and living with the consequences of those seemingly-small choices. To this day, I still regret not going upstairs to see her.  My final memory of her is wanting: one last hello, echoed coldly up at her from the bottom of the basement stairs.
  
In the months that followed, when no one was around, I would sometimes sit at the bottom of that dimly-lit and slightly-musty staircase, listening intently -- hoping to hear the sound of her heels (the ones she wore to dinner that last night) clacking against the kitchen floor as she approached.  Or maybe hoping I would catch a glimpse of her shadow as it fluttered briefly into the stairwell when she passed by.  Or maybe just hoping that something, anything, would happen to fill the silences which grew deafening in her absence.

I waited for hours.  She never came. 
 
But in those moments, I vowed to never take the people I love for granted again.  

There was no way I could know this at the time, but twenty-seven years later, fate would test that vow. And the next time, I would pass that test. (Yet another story for another time, perhaps.)

*****

We all work to maintain stability in our lives, and once we achieve it, it's not unusual for it to continue for long stretches.  The trouble begins because it's human nature to take familiar things for granted.  Just like investors near the end of a bull market, we often become complacent about our lives during times of prosperity. 

Fate is fickle.  Lives can and do change in an instant.  I've personally never been able to put this concept down any more succinctly than Robert Herrick did in the 17th century, when he admonished us "to make much of time" and wrote:

Gather ye rosebuds while ye may,
Old Time is still a-flying: 
And this same flower that smiles today
Tomorrow will be dying.
 
Although we may feel the urge to become complacent about the future, life makes us one guarantee, and one guarantee only:  this exact present moment.  There really is no such thing as the future, except in our imaginations.  This truth is even echoed to us regarding equities: "Past performance is no guarantee of future results."  But in life's case, past performance is no guarantee of future. Period.  

My point is not to be fatalistic.  Quite the opposite: My point is that we should strive to avoid complacency in our approach toward life in general.  During times of prosperity, it's easy to fall into patterns which are based on assumptions of a future which may never materialize.  We put off phone calls, visits, and time with loved ones based on such assumptions.  We prefer not to consider that by the time the future becomes the present, it may no longer be in a form that's even recognizable to us today. 

If one wishes to avoid regrets, then the time to examine our complacency and challenge our assumptions is right now -- because while the future is always imaginary, with each successive tick of the clock "now" becomes part of the past.  And that past is immutable.

We're goal-driven creatures, so we're often tempted to focus on the future as some sort of reward for the present.  I think, in this regard, we can take a lesson from the end of the rainbow -- the "end result reward" is an illusion.  There is no true end, not in the sense we want to believe.  There's no perfection, no absolute completion, no "game over, baby, I beat life; can't wait 'til they come out with the sequel!"

If we can't find meaning right now, here in the present, then we never will.  After all, when you finally get to the future, what do you actually discover?  You discover it's still the present.  There is nothing else.

So how do we work toward our goals without becoming obsessed with the future and with end results?  These are questions which have challenged philosophers since the beginning of time, and I certainly don't have all the answers.  I can't promise my solutions are the best or only solutions, but I can say I've found they work when I can remain consistent in them. 

My solution starts with the knowledge that the future isn't guaranteed, only the present is guaranteed.  Since I know this to be true, I am thus able to determine that ideals which place the future ahead of the present, such as "the end justifies the means," are completely backwards.

What I believe is: The means justify the end.

In other words, if you do your best, live your life with as much honor and integrity as you possibly can, treat others as well as you can, and still fail in the end -- then that's okay. You have done what you were put here to do. The "end results" are out of your control, and in essence, none of your business. 

If you value doing things right above results, you will generally still be a great achiever, but you will not do so at the expense of other people.  If it can't be done right, if it can't be won fair and square, then forget it; you don't need it.  Life has something better for you, you just haven't recognized it yet. 

And there's another factor which tells us why we must value right action above results, which is:  Doing good things does not guarantee good results.  An obvious example would be a fireman who charges into a burning building to save a child, but loses his own life in the process.  

If we primarily focus on end results, all too frequently we will fail to take the risks which define a good life (most of the time these are emotional risks as opposed to physical).  We must thus take right action for its own sake, not for the end result, or we have no guiding principle and will quickly become lost in situational ethics.  
  
Despite earlier mention of failure, I've found this approach usually leads to fewer mistakes and improved performance -- partially because we're not wasting energy trying to control something imaginary which will never exist (the future).  We prioritize more accurately when we're focused on reality (the present).

And since the dual-focus is on doing the right thing at all times, we have a constant lodestar to guide us whenever there's a choice between two paths.  If fate steps in later and unexpectedly rips your life apart and leaves you exposed and naked with nowhere to turn, at the end of it all, you will actually still have everything you started with -- the only thing that's truly yours in this world: your own self-respect.  It will survive because you'll have very few regrets regarding your own actions.  To the contrary, you will find your past to be a source of strength.

Self-respect brings us to another concept which I believe modern pop philosophy has completely backwards:  "We must first love ourselves before we can love others."  This has become such common "wisdom" as to be cliche, and yet I cringe every time I hear it.  As I see it, it's a non-sequitur.  I don't know about you, but I love and respect myself the most when I'm a good person; and to me, that means being a loving person.  When I catch myself behaving selfishly, it often costs me a bit of self-respect.  So that tells me I cannot love myself "first" -- in fact, putting myself first is the very thing that can prevent me from loving myself.

I think the problem comes with our understanding of love; and I believe we over-complicate this issue because we have no separate terminology for emotional love vs. principled love.  As I see it: love is about doing what's best for the other person, plain and simple.  Sometimes this takes the form of romance, sometimes this take the form of empathy, sometimes it takes the form of discipline, or "tough love," etc..  Love is adaptable.  The common thread lies not in a specific action, but in the fact that love always thinks of the other's needs first and of its own desires second.

So when it comes to "putting ourselves first," I think love is the wrong ideal for that concept.  Where I partially agree is this: If we're not feeding our inner selves properly and on the right things, then we won't have the strength to truly love other people.  Ultimately though, I believe these concepts are inseparably intertwined, so would change the "love yourself first" concept to, perhaps: 

"Nourishing ourselves allows us to love and nourish others, while loving others allows us to love and nourish ourselves."  

It's a positive feedback loop; each step strengthens, and at the same time completes, the other. Simply advocating we "love ourselves before we love others" is to advocate the impossible.  To draw analogy from the physical world: there is no such thing as an "inside" without an "outside," and there's no such thing as an outside without an inside.  These components cannot even exist individually; they can only exist and function as a whole.

Anyway... as I see it, at the end of it all, what more can we really hope for but a loving life lived well and with honor?


So that's my Christmas story, and a few of my life-long reflections on the experience.  My hope is that there's something in there which someone else may find of value, too. 

Happy Holidays to all my readers, in whatever form that celebration means to you.  I'll return shortly after the start of the New Year (of course: barring the unforeseeable future!) with more charts and market projections.  In the meantime, best wishes to everyone for a safe and enjoyable holiday.

And if you're reading this from the next life somehow:  Merry Christmas, Mom.  

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Reprinted by permission; Copyright 2013 Minyanville Media, Inc.

Trader Psychology: Why the Stock Market is Always Right

The need to be right, at least on occasion, is important to an individual's self-esteem.  Most of us don't feel as good about ourselves when we're wrong, so some of us have found a work-around to this problem by occasionally (or frequently!) sacrificing our grasp on reality in order to preserve our self-images.

What does this have to do with trading or investing?  We'll get there in a moment.

The funny thing about this tendency is that it's difficult to observe in ourselves, but incredibly easy to observe in other people.

Let me draw an example, and see if you haven't noticed this trait appear at least occasionally in a coworker, or a friend, or a family member... and maybe yourself.  We'll start with an innocuous example to illustrate, then we'll talk about how this can impact traders and investors on a more serious level.

Here's the example:  You're playing Trivial Pursuit with family, and the current trivia question is: "Which Dickens character said, 'Please, sir, I want more.'"  Uncle Richard answers "Tiny Tim."  Uh oh.  Here we go again... "Sorry, Uncle Richard, it was Oliver Twist."  Well!  As we all know from countless years of unfortunate experience, Uncle Richard is NEVER wrong.  So instead of simply acknowledging this fact and letting the next player take their turn, Uncle Richard forces the whole table into an impromptu debate about classic literature -- and, although he's a plumber by trade, he has suddenly become the World's Foremost Dickens Expert.

This goes on for the better part of ten minutes -- meanwhile, everyone else at the table knows Tiny Tim's famous line was "God bless us, every one!" and sees that Uncle Richard is dead wrong.  But that doesn't matter.  In Uncle Richard's reality, everyone else is wrong and he's the Hero Fighting for Truth.  The debate eventually ends, but only because we finally agreed to give Uncle Richard the pie piece, due to sheer exhaustion in the subject matter.  He never admitted defeat.  Nor will he ever: for whatever reason, his version of himself requires him to be right at all times -- even if it means he has to warp his perceptions of reality in order to accomplish that.

This is what I mean about this trait being easy to see when it manifests in others.  We all know "how Uncle Richard is" -- but do you think he notices this trait in himself?  It's unlikely that he does, because otherwise he would find a more efficient and productive way of approaching life.  Probably all he knows is that he feels threatened and defensive a lot, and that most of the rest of the world "is a bunch of idiots."

I mention this because I have seen traders and investors fall into this same trap countless times.  I myself have fallen into it on occasion.  I've talked about it before, as our tendency to create an imaginary "market morality" i.e.- "The market shouldn't have gone up yesterday!"  As if the market did something morally wrong by rallying, while we were in the right and thus hold the high ground.  Even though our positions lost money, we are thus comforted by the thought that, somewhere out there, the Equities Gods have been angered by the market's display of impudence and They will one day rain down fire and brimstone upon the exchanges.  People who took the other side of the trade are invariably thought of as "fools," and "lucky."  And maybe they were, but that isn't the point (the actions and choices of other people have absolutely nothing to do with our own paths, and simply aren't our concern).

As far as I can determine, these thoughts exist for one reason, and one reason alone: they are a self-defense mechanism for the ego.  But they are ultimately counterproductive to our trading ability (as well as to other aspects of our lives).  One of the hardest parts about choosing and entering trades is removing bias, preconceptions, and ideas about what the market "should" or "should not" do.  The need to be right precludes that ability, and can actually cause us to misread reality.

Successful traders adopt the attitude that the market is always right.  I believe we should view it as our goal to align ourselves with the market as much as possible -- not the other way around.  If we're to succeed, then we have no choice:  Either we get in sync with reality and go with the flow, or reality will drag us along kicking and screaming.  I simply don't see another option since, as individuals, we cannot "force" the market to break or rally by employing willpower, by wishing, by prayer, by bargaining, by cursing, or by any other means (note: the preceding limitations may not apply if you are a central banker).  

The ability to accept that the market is always right is an outcropping of humility; and ultimately, it's also the only way we will recognize and learn from our mistakes.  After all, if the market is "wrong" when we lose money, then in essence we're saying that we didn't make a mistake, the market did. And if we truly feel that way, then there's no impetus to even go on the quest for knowledge and learning in the first place.

Thus it is ultimately an act of humility to accept defeat and accept the lessons of the market -- and in the end, we'll be better traders for it.  Without the need to be "right" slowing us down, we can react more quickly to changing market conditions and reality in general, and we'll find that we end up on the (actual) right side of the trade more often and with greater speed.  At the end of the year, your account will thank you (and, in Uncle Richard's case, so will everyone else).

There's been no material change in the outlook, so just one chart today, in order to avoid having to reprint yesterday's article in its entirety (See:  SPX Captures Sixth Straight Target Zone -- Will Bulls Reach the 7th?).

In conclusion, there's very little to add to yesterday's outlook at the moment; so please refer to it if you missed it on the first go-round.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
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Reprinted by permission; Copyright 2013 Minyanville Media, Inc.

SPX Captures 6th Straight Target Zone; Will Bulls Reach the 7th?

Yesterday the S&P 500 (SPX) dipped into the 1760-70 target zone, then immediately rocketed out like a cat thrown into a bathtub.  The big news yesterday was the announcement that the Fed will begin tapering QE.

Most readers know I'm a technical analyst first and foremost -- which means I believe the charts contain the majority of relevant information that can (and does) tell us where equities are headed.  Occasionally, I speculate how the market will react to news, but much more frequently I do the reverse and try to speculate what the news will actually be, based on the projections I'm anticipating from the charts.  Sometimes I can predict the news based on the charts -- but then we get days like yesterday where we get a bullish reaction to news which would typically be considered, at best, neutral.

And this is why I focus on charts, not news.  I can't predict the news -- and even if I could, I can't predict how the market will react to it.  Sometimes good news is bad and bad news is good:  Yesterday the market decided, "Well, hey... QE taper means the economy's picking up!" and chose to look on the bright side.

(If you're new to Elliott Wave analysis, you may enjoy my quick primer on the subject: Technical Analysis: Understanding Elliott Wave Theory)
 
Given the high momentum of the rally, there's every reason to suspect the preferred count will continue to play out as projected weeks ago, and good reason to believe we're now in the anticipated fifth wave rally.  Yesterday's move reminded me of a bear market short-covering rally -- but in a bull market.

As an aside, I'm continually trying to refine my approach to the body of the updates in order to improve/increase clarity as much as possible, and I've decided that may be best accomplished by listing the caveats in a separate section for each time frame.  Let's start with the 30 minute chart of the S&P 500 (SPX):

 
The preferred count would like to see the rally continue up into the 11/18 target zone of 1825-1840.  Simple enough.

Now the caveats:  The first place we'd start wondering about that outcome is the old pivot zone of 1792-93.  That zone is not a true invalidation level for the cash market -- I'm actually basing it on a pattern within the E-mini S&P futures -- so it's not a "do or die" level for the cash market.  But that's where the caveats would start to come into play: if the market can sustain trade beneath that level, then we'll at least have to consider alternate counts. 

At this degree of trend, the two most obvious alternate counts are:

1.  That the ABC to red (4) was wave a of a triangle, which would then be expected to remain range-bound for several more weeks.  That count seems unlikely, due to the ferocity of the rally, which would be unfitting for the b-wave of a triangle.  The b-waves of triangles are usually ugly, overlapping affairs -- not strong moves like we saw yesterday.

2.  The black alternate count (shown above -- and which has remained since 1813 was hit) is that the rally was wave C of an expanded flat.  This count would peak shy of the all-time high and reverse to new lows.  I would give better odds to this than I would the triangle, but am presently still giving low odds to this option (as noted in red on the chart above), since the decline counts and reconciles perfectly well as labeled with the preferred count.  The main chart still bothering me slightly for the bull case is the Philadelphia Bank Index (BKX -- not shown) discussed yesterday.

Again, we'll look at alternates in more detail if the market sustains trade beneath the first key pivot of 1792-93.  Until then, we'll simply remain aware that these alternates exist.

The 3-minute chart notes the challenge of providing short-term projections when dealing with a parabolic wave.  I provide such projections when I can -- but I prefer not to swing wildly at any pitches, so I don't have a projection for this particular short-term wave structure.  A retrace toward 1796-1802 would be fairly "normal," but isn't guaranteed.  On the chart below, I've noted some horizontal support/resistance levels.

And now it's finally time to take a look at the bigger picture again.  The daily chart always seems so placid -- almost static -- compared to the micro battles I fight each day interpreting the one and three-minute charts, as I try to unravel, project, and trade the intraday market moves.  The daily chart hasn't required any updates for over a month, and is essentially completely unchanged.

This next discussion doesn't regard anything the wave requires from a technical standpoint, but is simply my speculative musings:  I would almost like to see this (assumed) fifth wave rally march into the target zone rather directly, blowing shorts out along the way (this is purely a technical desire, not a personal one!  Sorry bears.).  A move like that would clear out the shorts and help pave way for the larger fourth wave correction shown on the chart; and a "straight up" rally would increase odds that the price zone we're in now will ultimately be retested, which is part of the expectations of the preferred intermediate wave count (shown below).  We'll see how that goes if and when we reach new highs, then adjust as needed.

It is also possible that my projections are too conservative, and there may be one smaller degree fourth and fifth wave left to unwind prior to the larger red (4) -- this is noted in passing with the green "or v" annotation.  I tend to discuss the potentials I'm seeing well before they occur, but my hopes are that I don't confuse readers by doing so.  Assuming the market does reach the upside target zone, then the charts will contain more information, which will hint at how the masses feel about that price zone -- and thus help guide us regarding better odds for a continuation or reversal. 

In conclusion, it appears likely the market is in the midst of the anticipated fifth wave rally to new highs (aka: The Santa Rally).  From an intermediate perspective, we may be closing in on a larger correction.  Trade safe.

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Reprinted by permission; Copyright 2013 Minyanville Media, Inc.

Get Ready for Whipsaw Wednesday

Today is Fed Speak day, which is always loads of fun for traders, as the market usually gyrates wildly while people try to interpret the meaning of "Yes, we're going to taper, but not today or tomorrow, maybe next month, but probably not, but we could..." and so on.  Things will be especially interesting today, since I've received news that there was a major standoff at the Fed yesterday.  An exclusive source, who goes only by the codename Norelco, has informed me that the Beard has finally shaved off its Bernanke and is staunchly refusing to relinquish the Chair position, claiming it "won't look right" on Yellen.

Expect the Beard to do most of the speaking today.

On a serious note, keep in mind that the first move out of Fed Speak is often a head-fake, and frequently leads to a quick reversal.

Moving on to the charts, we have the potential for a challenging setup at the moment.  From an Elliott Wave perspective, I've continued to marginally favor a new low, and a trip into the downside target zone of 1760-70, followed by new all-time-highs -- but looking at the charts from purely a classic TA standpoint, the recent rally was rejected at a key trend line, and a sustained new low from here would give the charts a bearish appearance.  Folks who trade moving averages will note, however, that the 50-day moving average on the S&P 500 (SPX) currently crosses 1765.76 (which is suddenly curiously close to my standing "perfect world" target of 1765.33), and the 50 MA frequently acts as support/resistance -- so beyond the preferred wave count, there's still hope for bulls on a new low.

Despite the appearance of numerous "head and shoulder-ish" (of course that's a word!) patterns on SPX, I still feel 1760 (+/-) is the more important intermediate pivot zone -- so as long as we do not sustain trade beneath that zone, I'll continue to treat any new low as the anticipated final decline of wave C of (4) down.  That said, I would remain very cautious as a bull here (as I've mentioned since December 2), since I believe the charts have stored potential energy for a nasty decline if there's any hint of ugliness from the Fed today.

Hopefully my readers are in a good position to capitalize either way, since the preferred count has tracked exceptionally well for several weeks and has kept us on the right side of the trade.

Monday's rally captured all the upside targets that were published on Friday, then stalled right at the pivot zone.  I've added some new signals to watch on the 3-minute chart below:

Note the rally also stalled at the red trend line on the 30-minute chart:

Looking at the more bearish side of the trade, the Philadelphia Bank Index gives bulls something to think about:

On Monday, I ended the update with the following paragraphs, and I'm going to reprint them again here, since there's still been no material change (though upside targets have since been captured):

In conclusion, there's been no material change since Friday.  This is perhaps an overly-bold call, but I'd still like to see a near-term rally to the above-noted targets (on the 3-minute chart), followed by a near-term decline to 1760-70, followed by an intermediate rally to the 1825-1840 target zone.

The near-term alternate count is that wave C bottomed at 1772, while the intermediate alternate count is that a more bearish leg is underway.  To this point, the market hasn't done anything unexpected to cause us to favor an alternate view -- but the market always reserves the right to do so at a moment's notice.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
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Reprinted by permission; Copyright 2013 Minyanville Media, Inc.