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SPX Update, and Avoiding Tricks of the Trader Brain

"It's not what you look at that matters, it's what you see."  -- Henry David Thoreau

While I realize Thoreau was not referencing trading, have truer words ever been spoken in regards to charting the market?  Ever trader on the planet has access to the exact same charts and much of the same information -- and yet if everyone "saw" the exact same things, then there would be no market at all; we would have only buyers on one day, and only sellers on another.

We don't have everyone on the same side of the trade, though, because we all see the market differently.  One aspect of successful trading is the ability to see things that the majority do not.

Another key is to see what's really there.  While that sounds simple enough, "seeing what's really there" is easier said than done -- partially due to our biology.  It might come as a surprise to learn that our brains aren't actually designed to see what's really there.  This is because our brains lack the capacity to process all the information that comes in through our senses, so one of the functions of our prefrontal cortex is to act as a filter against that constant flood of stimuli.  Without that filter, we would suffer from sensory overload.

Here's where things get interesting:  Scientists have recently discovered that there are neurons in our prefrontal cortex whose sole and specific purpose is to suppress information that we aren't interested in.

Read that again, and then consider the implications for a trader.  We all know that "bullish or bearish" biases can be account killers -- and part of the reason appears to be that our brains are hardwired to actively suppress information that counters our biases.  While science has only discovered these special "information suppressing" neurons within the past few years, I think many of us intuitively realized our brains work this way long before science made it official.

It really is amazing how much information we miss on any given day.  Moving from the scientific to the anecdotal:  When I was 9 years old, my father gave me an impromptu demonstration of this fact  He and I were walking out of a shopping mall in Pennsylvania, when we noticed a beautiful rainbow.  The rainbow wasn't directly in front of us, but was something we spotted with our peripheral vision as we exited.  Rainbows this gorgeous were not commonplace in the Lehigh Valley, so my father took this opportunity to teach me a life lesson.

Instead of heading straight to the car as we'd planned, he directed me to sit on a bench near the mall exit and told me, "Watch people's eyes as they leave the mall.  Count how many people notice the rainbow." 

In the time I sat there, 36 people walked out of the mall, and, as far as I could tell, everyone who noticed the rainbow reacted in some way, even if just to turn their heads and look at it.  Finally my father asked me the results of my tally:  Out of the 36 people who exited, a total of only four had even looked in the direction of the rainbow.

"You see," my father said, "most people are so wrapped up in themselves that they end up completely missing life.  As you grow older, it will become harder not to be that way.  Never lose your sense of wonder."

Keeping an open mind to all possibilities is one way to help instruct our brains not to ignore information.  As I've said before:  Your toughest opponent in trading, and the hardest one to overcome, is yourself.

Last update expected the market would correct lower over the near-term, and Monday's opening pop was sold to new lows immediately.  Two wave counts were shown, and both remain viable, with the additional note that if the ending diagonal is unfolding, there are now enough waves in place for new highs.  The bullish pivot level, and invalidation level for the diagonal, is 1895.  This level invalidates the diagonal because wave (v) of the diagonal cannot be longer than wave (iii) of the diagonal.  Interestingly, this now aligns perfectly with the 1895 pivot zone identified on March 5, long before the potential diagonal formed.

On March 21, I mentioned:

This pattern is starting to look a bit like a triangle, so be cautious of sideways whipsaw action developing.

We can now clearly see the potential of an ascending triangle on the above SPX chart -- and we can find triangle-shaped patterns in many other markets as well.  The Dow Jones Transportation Average (TRAN) shows this pattern as well as any:

In conclusion, last update I opined that the wave structure suggested SPX would ultimately see new all-time highs.  There are enough waves in place now for a complete correction, so it is possible for those new highs to happen directly.  The first key level for bulls to reclaim is 1884, while the second is 1895.  The first meaningful zone for bears to claim is now 1849, but the low end of the trading range (near 1839) is more important.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX and BKX: Equities Market Reveals Its Intentions

Friday saw a bearish reversal day, as prices opened higher and made a new high, then reversed to close lower.  Normally a day like that has some follow-through on the sell side.  The new high in the S&P 500 (SPX) has created a potential problem for bears on the longer time frames, though, as it strongly hints at an incomplete upwards wave structure.  There are a couple ways we can get there, which I'll outline below.

I've noted the 1883-84 zone as resistance more than a few times in the recent past, and the market demonstrated that it needs a bit more coiling before breaking through.  The form this coiling takes will tell us a lot about how strong the rally will be once resistance is reclaimed.  The chart below outlines two options in detail:

1.  In black and blue is the option of an expanded flat.  The minimum expectation for an expanded flat is a decline south of the black A wave low at 1839.  If the market bottoms there, that would likely mark the bottom of wave ii of v and lead to a strong rally toward the high 1900's in iii of v.  The intermediate structure allows for wave C to be one degree higher and lead to a much deeper correction, but we don't want to get too far ahead of the market, so we'll cross that bridge if and when we come to it.

2.  In green is an ending diagonal.  The ending diagonal is near-term bullish, but much more bearish on an intermediate basis.  This means that, ironically, bears want to see the market rally sooner rather than later.

Both of those counts anticipate the market will do some backing and filling here before rallying much higher.  However, in the event of an immediate rally that overtakes 1908, then it's probable the market is already in the midst of wave iii of v.

For the long-term picture, SPX has remained undecided and continues to keep its options open.  The question has been unchanged for nearly a month:  is the fifth wave completing, or will it extend?  SPX has refused to give a definitive answer so far.

Speaking of long-term charts, on Friday, the Philadelphia Bank Index (BKX) captured its long-term target of 73-74.  This target dates back to nearly a year ago, and its capture represents the potential of a nearly-complete long-term correction in BKX.  Keep in mind that this is simply a potential to be aware of at this stage -- this market hasn't broken any key downside levels (obviously, since the target was just captured), or given any signs of doing so yet.  In fact, the 10-minute chart suggests it's unlikely the final high is in for this market.  Nevertheless, it's worth watching -- and if you were long BKX since 59-60 (or lower), then the target has been captured.

In conclusion, bulls have now created a wave structure which strongly suggests that there will be new all-time-highs in the market's future.  What happens in the next few sessions will help detail how soon and how much higher.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

Understanding Cycles and the Importance of Trading Systems; Plus USDJPY and SPX

Trading can be difficult, and all of us make mistakes at times.  Some mistakes are small, and easy to forget.  Other mistakes are more costly -- and the more costly a mistake, the more difficult it is to live with afterwards.

The irony here is that, quite often, our biggest mistakes are not really "new" mistakes at all; they're mistakes we've made countless times before.  Few big mistakes suddenly materialize out of nowhere (though they often seem to) -- in reality, they are almost always the result of patterns or habits that we've acted out for many years on a smaller scale.  Since the small versions of our mistakes never cost us much in the past (and thus never caused us much pain), we overlooked them, or ignored them, or never even noticed them to begin with.

Big mistakes offer a unique opportunity to learn and grow, because they can usually be traced back to a core error within our thinking that has previously manifested countless times in little ways.

One of the worst things that can happen to a trader, especially a new trader, is to be rewarded for a mistake.  I have to assume this has happened to all of us, in various ways -- some examples of mistakes that can end up as "winners":

1.  We may take a very high-risk entry that ends up paying a profit.
2.  We over-leverage at exactly the right time and win -- when a move the other direction would have wiped us out.
3.  We buy or sell based on "conviction" and not based on the objective evidence of our chosen trading system -- and end up in a winning trade anyway.
4.  We commit a huge percentage of our capital and end up huge winners, when we could just as easily have lost everything.
5.  We exit a trade based on anxiety and not on objective evidence, and it ends up being the best move afterwards.

These are just a few examples of the mistakes every trader has almost certainly made at some point in his or her career.  The "lucky" ones lose right away, and learn from it -- but the unlucky traders are rewarded and profit handsomely.  Having been rewarded for bad trading behavior, these unlucky traders will not recognize their behavior as erroneous.  Eventually, these traders will be wiped out -- probably in a more painful fashion than if they'd simply lost right at the beginning and had the opportunity to learn and correct their behavior.

Just because something worked before doesn't mean it will work again.  How solid is your personal approach?  What are your rules for entering and exiting a trade?  How do you manage risk and position sizes?  What is the minimum risk/reward ratio you'll accept?  What would cause you to exit a trade early -- or late?  What are the rules that govern exit behavior?  What amount of your trading behavior is arbitrary?  These are just a few of the questions with which traders must continually challenge themselves.

Some years ago, I had a trader friend who was a diehard perma-bear, and it just so happened that he got very lucky in the NASDAQ crash of 2000.  When NASDAQ crashed, he had literally just started trading, and he put his entire account (roughly $25,000) into various NASDAQ puts, immediately before the tech bubble burst.  He kept rolling his puts over as the crash continued, and he ultimately emerged from the crash as a multimillionaire.

Unfortunately for him, he got very lucky on his first trades.  His trading "system" (which basically consisted of "buy puts") seemed to be a huge success.  And indeed, that's a great trading system to have during a crash!  But what do you do when the crash ends and you have no other strategies to employ?  At that point, you really have two options:

1.  Take your profits and walk away.
2.  Learn to employ additional systems.

But my friend chose neither of those options (no pun intended) and simply continued with the put-buying system that had made him a millionaire.  After all, why would he change strategies at that point?  He had been handsomely rewarded for his behavior, so what on earth could possibly motivate him to even consider another strategy?  Tragically, by 2004, he had given all his profits back, plus his original capital.  He went from multimillionaire to flat broke.

There's a reason for the saying, "Easy come, easy go."  If we don't "earn" the money in the traditional sense of hard work and discipline, then we rarely have any idea of how to keep it. 

In the end, "strategies" like the one my friend employed are no different than gambling; and true gambling usually generates similar results:  Sudden great fortune almost always ends in catastrophe.  In fact, the National Endowment for Financial Education estimates that 70 percent of people who unexpectedly come into large sums of money end up broke within seven years.

One factor in this is human nature: the more we have, the more we tend to consume.  I'm not going to delve into that aspect here, though; instead we're going to look at how this ties into the nature of the stock market.

Every bit of observable evidence suggests that virtually everything in the universe experiences cycles.  Consider this statement in terms of the seasons; or the life cycles of all living things; or the "life cycle" of an inanimate object (such as a mountain, or a star, or a galaxy).  In fact, I challenge you to find something that does not experience cycles of some kind.  I personally cannot think of anything in the observable universe that does not undergo a build-up toward a zenith of existence, followed by a decline away from that zenith.

For example:  Humans are born weak and defenseless, but build toward physical zenith as they mature.  At some point, humans reach a peak level of health and strength (the "prime of our lives" as they call it) -- and then we start down the other side of that hill, gradually losing strength and ultimately ceasing to exist (yes, the human condition stinks).  Virtually all living things follow a similar arc.  Even stars have a "prime of their lives," but later reach an age where their energy output decreases and they begin to grow colder -- eventually either burning out or exploding (on the plus side, very few humans explode at the end of their life cycles).

Cycles are so prevalent that certain human concepts exist only to quantify the cycles we observe:  Winter, spring, summer, fall; day, night -- not only are these examples of cycles, but those words wouldn't even exist if we lived in a static, cycle-free world.  If not for the cyclical nature of our climate, we'd have just one name for our only season:  "Sprallter."  "Gonna be another lukewarm Sprallter this year!" people would randomly remark to strangers on the street, "Yep!  Always is!"  

Things such as seasons, and day and night, are obvious examples of cycles that experience a build-up, a zenith, and a decline.  A simpler (and more thermodynamic) way to express this might be to say that everything in the universe is either gaining energy or losing energy -- some things faster than others, but virtually nothing in the universe is static.

It appears that, for the most part, we personally cannot control the massive cycles that govern our existence.  How does this apply to trading and investing?

Let's consider a gambling analogy:  If we sit down at a slot machine, put all our money into it, and simply push the "spin" button endlessly, then we do not control our destinies even slightly: the slot machine does.  Our financial fate becomes tied to the "fate" of the slot machine, and we become completely subject to the laws of chance.  Free will essentially vanishes.  Our fortunes will rise and fall purely based on the cycles of that slot machine.

Some investors and traders approach the stock market in a similar fashion, endlessly pushing the "spin" button, as my unfortunate friend did.  That type of approach gives an illusion of control, but ultimately, it has none.  Entering trades largely at random doesn't control the market any more than pressing the spin button controls a slot machine. 

So how do we separate our financial fates as individuals from the fate of the market?  How do we give ourselves a true advantage over blind chance?

We accomplish this by developing trading systems.  Having a trading system is, in essence, an expression of free will:  it allows us to link our fates to the market when we see an advantage, and disconnect when we don't.  Without a system, we might as well just buy an index ETF and ride the market out wherever it goes.  Obviously, very few people who are reading this (type of) column would have an interest in a buy-and-hold approach.  Likely the very reason any of us sought a system in the first place is because we had an instinctive desire to pull away from the herd, and thus to separate ourselves (and our families) from the destiny of the collective.

I don't have space in this article for a comprehensive discussion of trading system specifics -- that's often the topic of entire books.  My goal was more to address why there's a need for such systems.  In closing that thought, it's also critical to remember that after one develops a trading system, then one must further develop the discipline to stick to it.

Moving on to the charts, let's look at usd/jpy first.  On Wednesday, usd/jpy captured my target of 102.600 (from March 17, reiterated March 19) and as promised, once that level was captured, I switched from near-term bullish to "neutral-leaning bearish."  The bear count can still withstand a bit more upside in dollar/yen, but things become ambiguous with sustained trade north of 102.800ish.

This market is a good example of where a trading system can allow one substantial profits.  Unlike SPX, I've felt the wave count recently was pretty clear in dollar/yen, and this market has performed as expected since I outlined the key zones on March 12.  If you've traded the preferred count and key zones in usd/jpy with discipline for the past 9 days, then you're sitting on more than 200 pips of closed profit, and another (roughly) 30 pips in open profit (for those of us bold enough to close longs at the 102.6 target and reverse short in front of the freight train).  For the risk averse, stops on shorts can be moved to roughly break-even with little remorse.  There's always the next trade, and no reason to give back profits if dollar/yen starts entering ambiguous territory.

SPX has shown resiliency since 1839, and on Wednesday, bulls grabbed the ball right at the key trend line outlined earlier that day.  This pattern is starting to look a bit like a triangle, so be cautious of sideways whipsaw action developing.  Thursday's session was an inside day (all trade remained within Wednesday's range), but that can be interpreted in different ways.  On some occasions, an inside day at the end of an uptrend indicates buyer exhaustion; other times, it simply marks a consolidation.  In all cases, it does indicate some level of indecision in the market -- so it's difficult to draw a conclusion from a pattern that suggests the market itself hasn't drawn one.

In conclusion, we've seen a fair amount of volatility recently -- but, in the case of equities, that volatility has simply created a trading range, and trading ranges are notorious devoid of information.  The key levels have become more critical to the next sustained move.  Have a great weekend, and trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

Recent Market History Gives Warning for Today's FOMC Day

Today is FOMC day, which is typically a great day for traders who enjoy volatile whipsaw markets and feelings of righteous indignation.  Recent market history suggests it may also be something more.

In Monday's update, I discussed that I felt the market had reached an inflection zone, and it had the potential to put together a decent rally.  The S&P 500 (SPX) has since rallied to within 10 points of the all-time-high, which is an important resistance level.  And now things get interesting again, especially since this week we have March options expiration (OpEx), in conjunction with the FOMC meeting.  During 2013, there were three FOMC meetings that fell during OpEx weeks, and all three led to major turns (plus or minus only one trading day).  I've highlighted this on the long-term SPX chart which follows.

The long-term SPX chart shows that there are two potential intermediate counts in play, and a clear victor still hasn't emerged yet.  If bulls can sustain trade above the up-sloping red trend line (on the chart below), then the market will likely take aim at the 2000's.  For the moment, though, the all-time highs and said red trend line must be respected as resistance.

It's also interesting to note the prior decline found support after a perfect test of the dashed red median line, and is now testing the blue trend line.

On the 30-minute SPX chart, I've outlined the bull/bear key overlaps, and the bearish pivot zone.  I've also revisited the near-terms wave structure slightly in order to explore how the decline could be counted impulsively -- this is largely an academic exercise with this type of ambiguous structure, as opposed to being predictive (as it sometimes is).  The rally off the low is three waves so far.

Finally, let's update the USDJPY Forex chart.  I'm still inclined to lean near-term bullish on this pair until my target of 102.600 +/- is reached on the upside (at which point I would become neutral leaning bearish), or until dollar/yen sustains trade beneath 100.750 (at which point I would become bearish).

The first meaningful level is 101.200:  A quick whipsaw would be okay, but sustained trade south of 101.200 would suggest a retest (or break) of 100.750 (shown as the gray alternate count) -- and the same rules then apply to the 100.750 level, but on a larger scale.  As with many charts, the first key level (101.200) provides warning that a trip to the next level is likely.

In conclusion, I was bearish early in March and remained so until Friday's close, at which point I shifted to near-term bullish.  I would currently label myself as neutral for the following reasons:

1.  The intermediate wave structure has a bearish bias until the noted levels are reclaimed; this conflicts with the intermediate trend, which is still bullish.
2.  Price is clearly in a bullish near-term trend for the moment.
3.  Both trends face resistance at the noted key levels -- meaning those price zones potentially have the power to stall or reverse the trend.  If the market instead sustains trade above those key levels, then odds are good the trend will accelerate.

It will be interesting to see if the FOMC meeting today, in conjunction with options expiration week, generates a major reversal as it has on the past three occasions.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

SPX, TRAN, USD/JPY: Bull Case, Bear Case, and the Key Levels

Sometimes the market presents patterns and wave structures that allow for high-odds predictions (or "high probability trades," use whatever terms you want here) of where price is headed -- other times it doesn't.  Friday, I felt that new lows were high probability, and the market indeed made new lows.  But as of the close on Friday, the situation has changed.

The market has now completed certain requirements of the wave structure, and has thus transmuted into a pattern that I believe can only be "predicted" if one makes assumptions and accepts certain presuppositions.  Personally, I don't see any reason to make assumptions here.  It appears to me that the market has reached another inflection point, and it may be a big one -- so today I'll discuss some of the things bulls and bears need to accomplish heading forward.

One of the markets I've been discussing a lot recently is the US dollar/Japanese yen Forex currency cross; not coincidentally, usd/jpy is also poised at an inflection point in conjuncture with equities.  A breakdown at the key price zone could easily lead dollar/yen to 97-98, which would suggest "risk off" was taking over, and that would be bad news for equities.  Since this is an important juncture, let's discuss what would constitute a breakdown in dollar/yen.

Traditional Elliott Wave wisdom would look at the usd/jpy chart and say that 101.201 is the key overlap to "guarantee" the last rally was a corrective ABC rally -- however, I've traded this particular Forex pair quite frequently, and I've seen usd/jpy violate this same type of "guaranteed" pattern on many prior occasions without consequence (i.e.: break below an assumed B-wave low, only to then reverse and hit new highs).  When we get to the chart, I'll illustrate the wave count which makes said violations technically possible.

After studying both sides of the trade, I would say 101.201 is the next bull warning level, and a break there would add some confidence to the bear scenario -- but, based on my prior experiences with this market, I cannot in good conscience say that level would be the end of the road for bulls.  100.756 is, in my opinion, a better "all clear" level for bears; and, as noted, a sustained break of 100.756 should likewise spell trouble for equities. 

Currently, the exact key level is a bit of a moot point, as neither of the above-mentioned levels have yet been violated.  Dollar/yen has been rallying off the recent test of 101.200, and is (as of the time of publication) approached a back-test of the yellow base channel.  Also note the potential head and shoulders pattern that's forming with 101.200 as the neck line.

The chart below illustrates both the bull count and the bear count, and shows why 101.201 could be briefly violated without creating any true technical issues for bulls.  These two counts run in diametric opposition to each other on an intermediate basis, which is one feature that helps define inflection points -- but near-term, they may be in agreement.

As long as this market doesn't sustain trade below the key 100.756 pivot, a rally back toward 102.600 +/- would be reasonable for both the bull and bear counts.  For the bear count (red), 102.600 fits the expectations of the retrace for an extended fifth wave decline, and would also make a nice right shoulder for the potential head and shoulders pattern.  For the bull count (white), the rally in usd/jpy would, of course, ultimately exceed 102.600 and head back toward 104.

Note the bull count could bottom anywhere north of 100.756.  If 100.756 is violated, then at best, bulls get a quick new low that leads to a large second wave rally before a monster third wave sell-off -- we'll discuss that in more detail as and if it becomes appropriate.  The key point is that I think this market is as important or more important to watch than equities at the moment.  Forex tends to be "smarter money," and often leads equities. 

Let's look at another market that's reached an inflection point:  the Dow Jones Transportation Average (TRAN).  TRAN has so far formed a three-wave decline, and decisive new lows are needed to start giving the decline an impulsive appearance.  I've noted the first two bull/bear pivots on the chart.

On Friday, the S&P 500 (SPX) reached the anticipated new low, but has not yet reached the (implied) target.  The 1854 level, which I noted was the key overhead pivot for Friday's session, did contain all rally attempts -- but it's valuable to mention that since new lows were achieved, that level is no longer important.  If bears are in control, that level could, of course, still act as resistance, but it's no longer a key overlap that technically damages the bear case.

SPX made two lower-lows during Friday's session, and both came with bullish RSI divergences (see red annotation box below).  This entire wave may still be part of a fourth wave, but we can't automatically make that assumption at this juncture.  If the market's intention was simply to form a correction to the prior large rally, then there are now enough waves for that correction to be complete.  And since we can't say with certainty yet what the market's intention is at intermediate degree, the bull option must be respected here.  How the market behaves at the pivots and key levels will provide the next bits of concrete information.

If we assume we're dealing with an impulsive decline, then a rally toward gray "4?" followed by a decline toward gray "5?" would be the outcome -- but I can see the bull argument here quite clearly, so I can't see how we'd be justified in making that assumption.  Better to let the market point the way.

There's an option I haven't shown on the chart above: It's technically possible the market is nesting a series of bearish first and second waves, which would mean it's setting up for a waterfall decline.  The bear count on dollar/yen supports this potential as well.  So, because that's still a very real possibility at the moment, I would be inclined toward caution and nimbleness on long positions until SPX sustains trade north of the key bullish pivot.  That's certainly not trading advice, and your personal risk tolerance may vary.

In conclusion, early in March the market reached an inflection point, which proceeded to generate a reversal and decline.  By virtue of the wave structure, it has now reached the next inflection zone -- and what happens next, especially in usd/jpy, should have big-picture implications for both bulls and bears.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.

USD/JPY and SPX Updates: Warnings for US Equities from the Forex Market?

In the last couple updates, I mentioned that I felt the market was ready to break away from the sideways grind, and bears were finally rewarded for their patience as the S&P 500 (SPX) had an ugly day on Thursday.

There's a lot to cover, so let's start with the US dollar/Japanese yen (usd/jpy) currency cross (or the "gopher" as it's sometimes called -- no, I'm not making that up.).  If you're an equities trader, you might ask why this Forex pair matters to you -- without going into too much detail on carry trades (which I've covered in a previous update), the most simple answer is that equities have been fairly well correlated to dollar/yen of late.  This has not always been the case historically, but for the recent intermediate past, the major turns in equities and the yen have been in sync. 

Last update I warned that dollar/yen appeared to have formed a corrective ABC rally from the 2014 low (suggesting new lows to come), and that 102.600 +/- appeared to be critical support.  USD/JPY wobbled briefly around that support zone, then early yesterday it proceeded to plummet rapidly in a waterfall decline.  At last glance, it was trading near 101.423 and flirting with rising support from the 2014 low.

The low seen on this chart (near 101.800) in dollar/yen came in concert with the February low in US equities.  If that low breaks down -- which ultimately appears likely -- then dollar/yen has lots of room to run on the downside and this could likewise bode poorly for US equities.

   

Next let's take a look at the SPX weekly chart, for perspective.  While it's been a good week for bears, in the big picture, they obviously still have work to do.  Note that weekly MACD has so far failed its upward cross and appears be forming a bearish hook, and that the 1883 high generated a substantial negative divergence in RSI.

Finally, the SPX 30-minute chart:  Last update, I noted that Tuesday's wave structure pointed to 1854-56 as a near-term inflection zone, and SPX hit that zone and then managed a 20 point bounce before continuing down.  From its current zone, it wouldn't be unusual to see another bounce materialize for the near-term.  If there is a near-term bounce, the odds favor the decline will then continue to new lows (see RSI notation).  Of course, there are also options for an immediate resumption of the larger rally -- a bull market is no place for bear complacency.

The first large wave against the prior trend from a major inflection point is always the toughest, because one still can't be certain of whether to expect an impulsive decline or a corrective decline.  So on the chart below, I've shown the bull count in black and the bear count in red, and noted the levels bears want to hold (the first such level being the 1854-55 zone).

In conclusion, as of this moment, the near-term trend in SPX is down, while the long-term trend remains up, which calls for caution on both sides of the trade.  For the near-term, bears have the ball until proven otherwise, and normally, we'd expect to see a test of the 1827-1834 zone at the minimum; I've also outlined the pivot zones where that outcome might be called into question.  Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter:
 @PretzelLogic

Reprinted by permission; Copyright 2014 Minyanville Media, Inc.