SPX, COMPQ, BKX: Bull Case, Bear Case -- Head Case

This has not been the easiest market lately from either side of the trade.  I felt direction was pretty clear heading into SPX 1820, but at that point, I felt things got a bit iffy, which I hope I conveyed, though honestly I've been berating myself for not conveying it better.  Personally, I have been incredibly cautious during this rally, and have kept my risk profile very low since SPX 1820 -- and that approach has saved me a lot of capital.  But one of my goals with these updates is to help other people protect their capital, so I went back and checked to see how well I conveyed my feelings about the market's recent position.  On Friday, I wrote:

Wednesday was a good session for bears, as SPX captured its preferred target zone of 1824-33 (low of 1820.66), which was good for about 100 points of profit in four sessions.  We hit the intermediate turn well, and we've captured the lion's share of this decline off the all-time high, but now it's time for a little humility.  I'll discuss why below.

Let's start with the simplest wave count.  The first question we have to ask ourselves is if we believe this decline will be an ABC or a five-wave impulsive decline at higher degree -- and the honest answer is that no one knows for certain.  By all rights, momentum and most other indicators suggest that the final bottom isn't in yet, so odds favor new lows to come.  Therefore, we can make the assumption that we're in wave (4)-up with (5)-down to come, but we do have to remain aware that this is only an assumption.  

On Monday, I wrote:

In conclusion, amidst all the anticipation of new lows, I would again like to remind bears to pay attention to the basics in the form of trend lines and key downside levels.  If the market wanted to form an intermediate ABC decline, there are enough waves in place for said decline.  So, although it appears that the decline is not yet over on an intermediate basis, the first impulsive decline in a bull market is never a given -- and we must always honor both sides of the trade.

My conclusion is that I'm not sure how I feel about all that, and frankly, I think I could have done a better job conveying how cautious I was feeling about the bear odds at recent price levels.  But it is what it is at this point, and all I can do is try to convey those thoughts better in the future.

Water under the bridge, though, so let's see where we are now.  The market is in a bit of a no-man's land at current levels, so I'm going to cover the bull case and the bear case with as much detail as I can, given the very short time I have remaining as a result of Time Warner Oceanic's "system maintenance" that left me without blog access for a while.

We'll start with the bull case, via COMPQ:

And a closer look:

Now we'll look at the bear case, via two charts of BKX.

The 30-minute chart shows the detail, and why it's difficult to count the decline as complete:

Finally, SPX overlapped the 1926 zone handily, which pretty much rules out of fourth wave.  It's no-man's land for wave counts here, so I've highlighted a couple potential resistance zones.

In conclusion -- on Friday, I wrote the following to my forum members, and I think this conveyed my thoughts better than just about anything I've written in the updates.  It continues to convey my thoughts at this stage, so I'll end this update with Friday's comment:

I'm inclined to short the good R/R inflection points more than I'm inclined to buy the dips right now -- but that isn't a matter of conviction (despite what seems to be popular opinion), it's simply a matter of intermediate trend and comparative R/R. I'm somewhat agnostic to direction for the time being... so I'll short the inflection points when it seems appropriate, and be quick to bail if things don't pan out.
 
Direction has been clear since last month -- but right now, every trade on both sides is speculative, in my opinion. My strategy at times like this is to await the near-perfect entries (like 1898 SPX), but otherwise sit things out (unless, of course, something just screams at me in real-time).

The bottom line is I'm not in a hurry to give back my profits of the past few weeks. This market will make sense again soon enough.

Trade safe.

SPX Update: Detailing the 1-Minute Chart

After spending a ridiculous amount of time on one chart for this update, there's actually surprisingly little to add to Friday's update.  So far, the rally stalled at the noted key level of 1898, and has enough waves in place to be a complete ABC.

I'm going to start with the chart that I spent the most time on, which is a one-minute chart with some "thinking out loud" annotations.  If you don't like complex charts, then (to make it as simple as possible) C/3 could very well be complete at 1898.

Next is an updated version of the 10-minute SPX chart I published on Friday.  Note the rally stalled twice at the red trend line (I deleted the annotation that mentioned that line as important, but suffice to say it's somewhat informative that bulls failed to break out over it).

Finally, the simple bigger-picture chart.  This is still my preferred path heading forward; until the picture changes, I am leaning toward new lows, ideally in the form of a complex fourth wave (gray (4)).  In the event the market does make new lows, if it subsequently fails to hold support in the 1800-1814 zone, then we'd anticipate that gray (4) was already complete as opposed to complex as shown.

In conclusion, amidst all the anticipation of new lows, I would again like to remind bears to pay attention to the basics in the form of trend lines and key downside levels.  If the market wanted to form an intermediate ABC decline, there are enough waves in place for said decline.  So, although it appears that the decline is not yet over on an intermediate basis, the first impulsive decline in a bull market is never a given -- and we must always honor both sides of the trade.  Trade safe. 

SPX Update: A Simple Update in a Complex Market

Rest assured that I've looked at a lot of charts "behind the scenes" over the past 48-hours, but to keep things as simple-to-follow as possible, I'm only going to publish three charts.

Wednesday was a good session for bears, as SPX captured its preferred target zone of 1824-33 (low of 1820.66), which was good for about 100 points of profit in four sessions.  We hit the intermediate turn well, and we've captured the lion's share of this decline off the all-time high, but now it's time for a little humility.  I'll discuss why below.

Let's start with the simplest wave count.  The first question we have to ask ourselves is if we believe this decline will be an ABC or a five-wave impulsive decline at higher degree -- and the honest answer is that no one knows for certain.  By all rights, momentum and most other indicators suggest that the final bottom isn't in yet, so odds favor new lows to come.  Therefore, we can make the assumption that we're in wave (4)-up with (5)-down to come, but we do have to remain aware that this is only an assumption.

For the record, the gray path to "or (4)" shown below would be my "perfect world" outcome here, as follows:  A quick pop today, followed by a decline that breaks the prior low (probably finding support near 1814) then a sudden rally up toward 1898 +/-, and then another decline to new lows.

The question bears will ask is why I have wave (5) labeled near 1814, because that's far too short for typical Elliott Wave expectations.  I'll answer that with the daily chart below.  Note that the gray path I outlined above would work as one solution to resolve these conflicting market pressures.

The near-term chart is a little more complex.

On Wednesday, I published the following chart in our forums, and I'd like to update it and make it public now.  This chart has the potential to be a bit confusing, but suffice it to say that during Wednesday's session, I began viewing the last decline as (yes, another) extended fifth wave.  Be aware that red 5 of (3)/C does not end at blue 1 -- in this count, blue 1 is actually the first wave of red 5 (thus wave 3 is not the shortest wave).
 

In conclusion, to keep things as simple as possible with the market in a very complex position:  My perfect world outcome would be the gray path shown on the first chart.  That could always be blown up as early as today's session, though, so I've outlined some additional signals and levels on the 10-minute chart.  Trade safe.

SPX and COMPQ Capture First Intermediate Targets -- What Next?

A few interesting things have happened since Monday's update:

1.  SPX captured its first intermediate target zone (1885-1891).

2.  COMPQ captured its first intermediate target zone (4200 +/-)

3.  The near-term bullish (still intermediate bearish) B-wave option is effectively off the table.

Before going further, I'd also like to refer back to a couple important paragraphs from Monday's update, because these remain important with the market in its current position:

As I wrote a couple weeks ago, though, do keep in mind that "there's no such thing as support in a bear market" (see 9/24 annotation) -- so if the market has entered a bear phase, then support zones will mean much less than they did during the bull phase, and will end up functioning primarily as bull traps.

The 2-hour chart notes that, here again, this market has reached a potential support zone.  This is tricky here for bulls, though, because third waves are very unforgiving to counter-trend trading.  If the market has already entered blue (3)/C, then every bounce along the way is going to be sold to new lows and there will be no second chances to exit longs for profit.  So unless one wishes to end up becoming a "long-term buy-and-hold investor" at SPX 1900ish, I would suggest staying very nimble with any long positions.  The trend is down at the moment, thus the lion's share of intermediate profits will likely come from selling the bounces, not buying the dips.

Beyond that, I'm going to keep things fairly simple for today's update.

We'll start with COMPQ -- but before looking at the current chart, let's take a quick look at the COMPQ chart I drew on September 29.  From time-to-time I post things like this, because I've occasionally heard people grumble that Elliott Wave is a bunch of malarkey and there's no way it can work and besides, the market's unpredictable, and you can't pick tops or bottoms or time the market, and blahblahblah blah.  Plus:  blah!

So, in response, here was the only Elliott Wave count I posted for COMPQ, complete with projections, all the way back on August 29.  If anyone wants to insist this was pure random dumb blind luck, and that Elliott Wave doesn't work (especially considering that the wave counts were not bearish in the months heading into the top; even the first line on the chart goes up to V), then my only reply is this:  Get your own column.

Below is the current COMPQ chart.  As noted, the B-wave was slightly time-compressed verses how I drew it above, yet it peaked in the expected price zone.  For reference, I rarely do time projections -- I generally just do price, and then try to utilize the chart space so that the projections are easy to follow.

At this point, we do have to stick an "alt: C" on there, in honor of the fact that COMPQ has reached its A=C target zone -- but currently, there's nothing to indicate the bottom of C has arrived, and the preferred count remains pointed toward 4090-4110, with potential for even lower prices.  

SPX's 2-hour chart is below.  SPX has dropped through the gray base channel as anticipated, and has remained within the blue crash channel.  Bears shouldn't really consider anything other than sticking to "short and hold" mode as long as that blue channel remains intact.  This is what they've been waiting for, after all.

I drew the 2-minute chart yesterday, when future were still trading roughly flat, and thus I discussed an alternate near-term count.  As of the time of publication, that count is looking like it's become an even "less than alternate" count, and assuming the futures decline sticks through the open, the black alternate ABC count may be able to be ruled out within seconds of the cash open.

The preferred near-term count is that the market has been coiling, and is about to finally see the breakaway-type decline that has been conspicuously absent to this point.

NOTE:  Typo -- 1940-51 should be 1840-51.

In conclusion, the intermediate preferred count remains bearish, as it has since September 24, and the near-term preferred count is presently bearish.  Bears have no reason for any anxiety whatsoever as long as SPX remains within its crash channel.  Trade safe.

SPX, INDU, TRAN: Market Reaches Near-term Inflection Point; but Intermediate-term Unchanged

Nothing has changed to the intermediate picture in the past few weeks, and that remains bearish.  But the near-term is still up for grabs, so in this update I'll try to cover a few signals to watch.

Let's start with INDU's "simple" chart from a few weeks ago.  On Friday, INDU captured my target from October 29, and has accordingly reached a potential support zone.  As I wrote a couple weeks ago, though, do keep in mind that "there's no such thing as support in a bear market" (see 9/24 annotation) -- so if the market has entered a bear phase, then support zones will mean much less than they did during the bull phase, and will end up functioning primarily as bull traps.

The 5-minute INDU chart shows that both near-term options discussed on Friday still remain viable, and there's been nothing conclusive yet to rule out one or the other.  Spectacular failure of the lower blue channel line would be the bearish expectation, while the near-term bull option would need to muster a bounce very quickly to remain on the table.

On the SPX 30-minute chart, the very first step for bulls to even begin to gain a little traction would be to break out of the blue waterfall channel:

The 2-hour chart notes that, here again, this market has reached a potential support zone.  This is tricky here for bulls, though, because third waves are very unforgiving to counter-trend trading.  If the market has already entered blue (3)/C, then every bounce along the way is going to be sold to new lows and there will be no second chances to exit longs for profit.  So unless one wishes to end up becoming a "long-term buy-and-hold investor" at SPX 1900ish, I would suggest staying very nimble with any long positions.  The trend is down at the moment, thus the lion's share of intermediate profits will likely come from selling the bounces, not buying the dips.

Finally, TRAN is another market that's reached potential support:

In conclusion, this is a key inflection point for the near-term, though I do not believe it's an intermediate inflection point.  Nothing has changed in my intermediate stance since September 24, and I still believe bears have the ball for the intermediate-term either way -- but bulls do still have a shot at mustering a near-term rally, and it has the potential to be a solid rally.  Whether they will or not is another question entirely. 

It's interesting how the wave counts have set up here, in that if support fails significantly, that will essentially confirm that we're in the middle of a third wave decline... and the middle of third waves is the "point of recognition" for the masses.  What better catalyst for recognition could there be than a spectacular failure of support?

The main question in my mind is still simply "now or later?"

So, near-term, we have a few clues to watch to help sort out short-term bull option from the bearish option.  Intermediate term, I believe that even if bulls can put together a rally from here, that rally will be sold to new lows.  Trade safe.

SPX, INDU, NYA: Bulls Take a Beating

A lot of folks thought I was nuts back on October 6, when I said that the decline from the all-time high appeared impulsive to my eye, and that I felt that bullish calls for new highs were premature.  But I doubt I'm in the minority any more.

On October 6, I also outlined that my "best guess" was for the market to retest the low, then rally strongly in a double-retrace.  It did just that, but the subsequent rally failed to break the 1977 high, which would have been the typical expectation of the pattern.  If 1970 holds, then I think our best bet is to view that as a somewhat-rare running flat, wherein the c-wave fails to exceed the a-wave high (in this case, 1977).

Yesterday had all the hallmarks of the start of a third wave decline, since the majority were caught looking up while the market dropped relentlessly.  However, perhaps counter-intuitively, there is still an option for a rally back to that zone north of 1977.

In a normal market, I would just say that the third wave has started and be done with it.  But in this market, I am staying extremely alert to the rally option.  This is the type of pattern you really can't call in advance; it's enough to stay aware of it in order to make any necessary adjustments in real-time.

Below is the SPX 30-minute chart, which discusses this option in more detail:

The above-noted near-term bull potential would be very frustrating for bears who are already short and who don't remain nimble, but would be a blessing for bears who are looking for an opportunity to get short.

The SPX 2-hour chart ignores the above-option for purposes of keeping the chart clean, and notes the intermediate targets.  The intermediate count will most likely remain bearish in the event of the more complex flat and near-term rally discussed above.

INDU's chart also discusses the near-term bull count, which at the present price point is still about a 50/50 shot, and notes (in passing) the lone remaining intermediate bull count.  While I'm alert to the near-term bull option, I am currently discounting the intermediate bull count heavily enough that I'm not going to discuss it in any detail unless it becomes appropriate to do so.

NYA was one of the markets that kept me in the bear camp when many were turning bullish, and there were no surprises at all here over the past week:

In conclusion, I cannot confirm or deny the near-term bull option until the pattern develops a bit further, but I wanted to call it to readers' attention, because it's definitely something to remain aware of.   Regardless of how the near-term plays, I still remain intermediate bearish until further notice.  Trade safe.

SPX Update: Short and Simple

I apologize, but I ran short on time today, and, accordingly, have to do a relatively short update.

The simplest thing to do is reprint my "best guess" call from Monday:

If I had to "pick a side, any side," I would probably lean ever-so-slightly toward the extended fifth impulsive decline, but that's just because I'm a rebel.  Well, that -- plus that's what the pattern looks like to me.  And I think that pattern would burn a lot of people.

Just for grins, if this were an extended fifth, it would mean a corrective rally underway now -- one that could stretch out for a spell, with a possible "double-retrace" in store at some point.  That would see the market continue to rally for the near-term, then decline toward the recent low, but that test of the low would hold and we'd then rally back up to break that first high.

Hopefully the above at least kept readers from getting too bullish near the highs, as it seems many other traders did.

Step 1 and 2 of the suggested pattern have played out, and the market is now into the zone that qualifies as a retest of the low.  Basically, bulls need to hold it in the general vicinity of the 1926 low to have a near-term shot at another leg up.  They do not need to hold the exact low, because a brief break of the low would not rule out a b-wave (shown in red below).  But any break of the low would imply a third wave decline is in the cards, either immediately upon the break, or after a more prolonged rally to complete the "double retrace" (ideally toward the red 2 on the chart below).

The challenge on the chart below is that both the rally off the low, and the decline from the recent high, appear to be impulsive.  This makes it almost an impossible call as to whether we'll see another leg up or not.

 
In conclusion, my inclination remains that the decline from the all-time-high to 1926 SPX was impulsive (first waves are often sloppy and difficult to count, and that wave fits the bill), which means the rally is a correction to the decline.

It's worth noting that bears have pushed a few indices, such as RUT, to new lows -- and (although, obviously, one can never be 100% certain of the market's future) this was one of the points I tried to call attention to on Monday when I discussed the disconnect between large-caps and the broader market, which seemed to be showing more weakness than SPX and INDU.

The market is now roughly where I suspected it would be when I penned Monday's update, so at this point it's a simple matter of watching to see whether this test of the lows is successful or not.  Trade safe.