SPX, RUT, BKX: SPX, BKX, and INDU Capture First Targets; What Next?

Since last update, SPX and INDU made new all-time highs, thereby validating the preferred count and completing the first portion of my intermediate thesis.  From last Friday:

Most technicians are either still bearish and expecting an imminent top shy of the all-time high, or they're viewing this rally as wave (3) of (something) and expecting a moon-shot.  Is it possible that virtually everyone's wrong?

We can now confirm that those expecting a top shy of the all-time high were wrong, at least.  Now we try to figure out if we're actually closing in on a top, or if the moon-shot rally will materialize.  Let's see what we can glean from the charts.

First off, RUT has, thus far, fallen just a hair short of making a new high.  In a perfect world, I'd still like to see a new high there -- but while we're on that subject, incidentally, we are now into a zone where a failed fifth wave becomes possible. In my experience, the term "failed fifth" is often misused -- for a true failed fifth, there should actually be five waves present in the structure (but the wave fails to make a new high or low, hence "failed fifth.").

Some folks were talking about a failed fifth in RUT back when RUT was near 1150.  As I saw it, at that point, RUT did not actually reconcile as a complete five wave structure, but was instead only 3-waves up (i.e.- it was (1)/(2)/(3), or a possible ABC). That's why I never took the failed fifth idea seriously: Without five waves present in the structure, a "failed fifth" isn't a valid potential in the first place. Now, however, there are five waves up in RUT -- so, while a failed fifth wave is still a long shot, at least now it's technically possible.

Ignoring the failed fifth idea for the moment, it's difficult to triangulate the current wave, since there's no clear fourth wave in the structure.  I'm drawing my best guess target of 1214-1220 using proprietary formulas, but without a fourth wave to triangulate the count, I can't currently add or subtract any confidence to/from that target.

SPX followed the blue path outlined in the last update.  Since it reached a new all time high, and there are enough waves present, we do have to start considering the potential that (5) is complete or nearly so.  If we take our cue from RUT, though, then SPX may still need to unwind another fourth and fifth wave.

The decline into the end of the day yesterday was clearly impulsive, but the move into the all-time high was sloppy enough that I can't be sure the decline wasn't simply wave c of an expanded flat.  Nevertheless, I'm very marginally favoring the idea that yesterday's decline is the start of red wave (4), and will thus continue at least a bit deeper, perhaps after a small bounce to start the session.

If the big picture preferred count is correct, then we're likely close to completing black wave 5 on the chart below. 

A factor that's a bit harder to quantify at the present juncture is seasonality.  Traditionally, seasonality is quite bullish this time of year, and this factor, combined with RUT, are probably the two main things leading me to think we may still see the (4) and (5) unwind as shown on the chart above.  Another 4/5 unwind might also be a nice bearish sentiment killer.  All that said, if there's to be a surprise reversal in the near future, it may not follow the "usual" expectations... (continued, next page)

SPX, NYA, RUT: No Material Change Means It's Time to Play Devil's Advocate

No material change since Friday's update (please refer to it if you missed it), but I do think it's a good time for bulls to stay on their toes.  As I see it, there are two major inflection points wherein bears might surprise everyone and seize control, and the first such inflection point is essentially upon us (the second one comes shortly after new all-time highs).  It is a little bothersome that sentiment seems to be outrageously bullish, and that pretty much everyone is treating new all-time-highs as a given.

To be fair, I do still expect new highs in SPX, and so far that market's come within 2 points of breaking the old ATH.  But I always like to play devil's advocate to myself in the interest of staying as objective as possible.  So, from a technical standpoint, we do need to stay aware of the current inflection point, which is probably best revealed via NYA:

No change to the big picture:

SPX has several near-term options, and it's impossible to sort one from the other at this stage.  Meanwhile, perhaps the more meaningful takeaway from this chart is that SPX appears close to completing five waves of rally.  If my intermediate thesis is correct, this is the fifth wave rally of a larger fifth wave rally of a still larger fifth wave rally -- and a deeper correction will follow.

While there's no room for complacency this close to a major swing high, unless the picture suddenly changes significantly, RUT is probably going to keep me in the near-term bull camp until it breaks 1213.55:

In conclusion, we may be close to unraveling a fourth wave correction, but ultimately I'd still like to see SPX and RUT make new all-time highs before embarking on a deeper correction.  Trade safe.

SPX, RUT, INDU, COMPQ, BKX: What if Virtually Everyone Has it Wrong?

I'm going to reach into the archives during the first portion of this article, in order to lay the groundwork for my ongoing thesis that perhaps just about everyone (bulls and bears alike) is about to be duped by this market.

Back in November, I put forth the theory that the market was unwinding a high-degree fifth wave, which would then be followed by a significant intermediate correction.  On November 17, I published a "best guess" target of 2065-75 for that wave.  But as we reached that target zone, while I thought a correction was due, I did not believe the rally was over yet -- to the contrary, on December 8, I wrote the following:

Friday's market didn't perform the way a third wave should, and this has left a number of complex options open.  The charts might get a little confusing, so before we get into that, I'm going to give a brief synopsis of my thinking regarding the intermediate term:

1.  RUT and NYA have, so far, failed to make new intermediate swing highs.  Odds are good that needs to happen before a meaningful top becomes possible.
2.  SPY has been up seven out of the past seven weeks.  Over the past 18 years, this has happened seven times (go figure).  In 100% of those prior cases, the market formed, at best, a minor correction before making new highs.  In 0% of those prior cases, the market formed an immediate major top.
3.  Last week, we looked at an RSI top study.  Given the market's behavior in the past, it remains highly unlikely that any kind of final high is in place. 
4.  Therefore, while there is not yet enough pattern present to determine the exact depth of any (pending) near-term correction, I do believe it will simply be a correction, and resolve with new highs.
5.  I currently believe the odds are good for an intermediate correction to follow after the next rally takes us to (presumed) new highs -- but let's not put the cart too far in front of the horse...

As the market decline deepened, I'll admit that I began to wonder if I had been "caught looking" at the top, and if maybe I was wrong on points #4 and #5 -- nevertheless, I continued to refrain from becoming bearish, due to the other above-mentioned issues having solid weight in my mind.  In fact, on December 15, I wrote:

If this had been a normal market for the past few years, then I'd probably already be rabidly bearish.  But this has not been a normal market -- and once bitten, twice shy, as they say.  Or as George W. Bush so eloquently put it:  "Fool me once, shame on you.  Fool me twice, and I'm going to punch some central bankers."

I mean, let's face it, bears have been here a few times before.  It goes like this:

1.  Support levels begin failing, VIX spikes.
2.  The pattern starts to look exceedingly bearish.
3.  CNBC trots out several analysts who all share the nickname "Dr. Doom," and they each talk about how the fundamentals are garbage and the market is clearly headed to zero or below.
4.  Bears see a bunch of green in their accounts and start to feel excited...
5.  One of the major central banks announces some radical new program, such as that it will be providing free, unregulated personal printing presses for each and every banker who'd like one.
6.  SPX gaps up 257 points, and shorts are left running for cover as the market rallies relentlessly.

Well, we can't say we haven't seen this movie before.

And, just to wrap the archives up, on December 17, I ended with:

In conclusion, there isn't much to add down here.  If the decline is simply a correction, then it's in the zone where it could bottom -- the first thing bulls want to see there is sustained breakouts from the down trend channels.  If it isn't a correction, then bears are likely just getting warmed up for an intermediate decline.  It's interesting to note we seem to have reached an important inflection point as the market awaits more info from the Fed.  

As we know, that inflection point was accurately identified, and generated the current breakneck rally.  That brings us to the present.  And here's where it gets really interesting:  What if my original November hypothesis was correct?

Most technicians are either still bearish and expecting an imminent top shy of the all-time high, or they're viewing this rally as wave (3) of (something) and expecting a moon-shot.  Is it possible that virtually everyone's wrong?

The potential I have been favoring, and will continue to favor for the time being, was as I outlined on December 8, as follows (sorry for the repeat below, but it saves readers from having to jump back to the beginning):

4.  Therefore, while there is not yet enough pattern present to determine the exact depth of any (pending) near-term correction, I do believe it will simply be a correction, and resolve with new highs.
5.  I currently believe the odds are good for an intermediate correction to follow after the next rally takes us to (presumed) new highs -- but let's not put the cart too far in front of the horse...


This has been a bear-killing rally since 1820.  And if the current rally does indeed reach new all-time highs, it could be the proverbial straw that breaks the camel's back.  Bears will feel like it's the end of the world, and many will finally capitulate.  Bulls will feel unstoppable, as their mantra is again rewarded: "Buying the dip ALWAYS works," they'll say to all the downtrodden bears, who have vowed to never again short the market.

It's the perfect setup for an intermediate decline.

Fifth waves aren't really supposed to be obvious, otherwise there would be no one to buy them, and we'd never even have a fifth wave (no buyers = no fifth wave).  Ever wonder who the guy was who bought the market at the exact top tick of a long-term peak?  He was the guy who had no clue we were in a fifth wave.  And he wasn't alone, it's just that all the other folks who had no clue we were in a fifth wave got in a few points earlier.


The chart below shows my intermediate preferred count:

The moon-shot count remains possible, but I think we'll be able to identify the inflection points in real time well enough to know if the market is on the moon-shot track, so I'm not going to worry about it just yet.  I think the preferred count presents an excellent setup for a surprise sustained decline -- because for a sustained decline to materialize, the majority simply have to be net long, expecting more rally, and scared to short.

And how scared will everyone be to short after the last two declines have ended in face-ripping rallies to new all-time highs?  So I continue to favor new all-time highs in SPX and INDU -- and I think RUT, COMPQ, and BKX all support that conclusion.

I think RUT also supports the idea that this could be the final rally before a deeper correction, as it appears to be completing five waves up at multiple degrees of trend:

 COMPQ (continued, next page):

Bonus Update: No Material Surprises in RUT, INDU's Inflection Point

Another "day off" bonus update...

A quick chart of RUT, which seems pretty straightforward:

And in case I'm wrong on the bull case, here's one potential zone for INDU's next inflection point:

The bottom line is, bulls did what they needed to at yesterday's noted intermediate inflection point, and the long-term trend is still on their side, of course.  Trade safe.

INDU, COMPQ, SPX, RUT: Inflection Point on FOMC Day

Over the last 12 hours, I've spent so long staring at charts that when I look at a blank wall and blink rapidly, I can see the ghost image of price patterns.  Since I've run out of time for verbose text, I'm going to be light on words in the body of this article, and let the charts do most of the talking.

Today is, of course, FOMC day -- which means anything goes, and, as is often the case on Fed days, the market seems to have reached an inflection point.

Let's start with COMPQ, which served well as our canary, and which has now officially captured all of my bearish if/then targets (with ease):

Next is INDU, which reveals what I believe to be the most relevant conundrum from an Elliott Wave perspective:

The view of INDU from 10,000 feet takes note of an interesting test underway (continued, next page)

SPX and RUT: Bull Case, Bear Case

If this had been a normal market for the past few years, then I'd probably already be rabidly bearish.  But this has not been a normal market -- and once bitten, twice shy, as they say.  Or as George W. Bush so eloquently put it:  "Fool me once, shame on you.  Fool me twice, and I'm going to punch some central bankers."

I mean, let's face it, bears have been here a few times before.  It goes like this:

1.  Support levels begin failing, VIX spikes.
2.  The pattern starts to look exceedingly bearish.
3.  CNBC trots out several analysts who all share the nickname "Dr. Doom," and they each talk about how the fundamentals are garbage and the market is clearly headed to zero or below.
4.  Bears see a bunch of green in their accounts and start to feel excited...
5.  One of the major central banks announces some radical new program, such as that it will be providing free, unregulated personal printing presses for each and every banker who'd like one.
6.  SPX gaps up 257 points, and shorts are left running for cover as the market rallies relentlessly.

So are there any differences now?

Well, there is one elephant in the room, and that's the recent, and still ongoing, oil crash.  Needless to say, an oil crash is deflationary, and has the potential to cause a host of interconnected problems.  This is a new twist in the market picture relative to previous recent corrections, so maybe this time bears are for real.

But I think the jury is still out on that.

Let's start with RUT, which has essentially confirmed that its last major correction (from July) was exactly that: a correction.  This implies that RUT needs new all-time highs to fulfill its pattern.  I've been looking at RUT with that bias, and expecting a fifth wave up to new highs.  Some analysts are now saying that RUT must have had a failed fifth wave.  I take issue with that conclusion for several reasons:

1.  Failed fifth waves are the rare exception, and one should only consider them as a last resort.
2.  There's nothing in RUT's chart yet to invalidate a fourth wave -- so a fifth wave up is still entirely viable.
3.  There are other options beyond the simple linear logic that "either RUT makes new highs or it's a failed fifth."

For example, the decline off the all-time high can be corrective, as part of a triangle -- which means the rally since October would also be part of that ongoing correction.  In that case, the rally would be an ABC -- which, without a fifth wave, is, in fact, exactly what it is (as of this moment).

So, I think since the fourth wave has not been invalidated yet, a fifth wave up should still be considered as a very viable possibility.  If no fifth wave materializes, then our first consideration should be that the rally was an ABC and no fifth wave is needed -- and the correction from 1213 is thus ongoing.

 
Next, let's look at the long-term SPX chart.  This chart is little changed over the past month -- in fact, on November 17, I suggested a target of 2065-75 for the peak of 5.  If the decline continues from here, then we simply got "caught looking" at the top, as it was anticipated well in advance in the big picture.

The December 10 update noted that "Ideally, we are nearing the completion of wave 5 of 5, meaning bulls will want to stay very nimble.  Do note that SPX is now BELOW the blue trend line, which should be viewed with some caution as long as it continues."

So, is it time to call it quits on another wave up?  Well, that's a matter of personal preference, of course -- but objectively, according to the charts:  Not just yet.  As we can see below, SPX has (so far) only formed an ABC decline:

COMPQ is also near an inflection point:

In conclusion, so far, the decline is not impulsive, so bulls aren't out of the running just yet.  The next few sessions will be important, and should help us determine if bears have already seized intermediate control -- or not.  Trade safe.

Brief Update #2: COMPQ Canary Not Dead Yet

I intended today's update to be a comprehensive review of all things bullish and bearish, but my life got in the way and I had to deal with a personal issue.  Hopefully the "bonus update" on Thursday earned me a little bit of credit that can be applied toward today's unusually-brief update.

In any case, I promise a more comprehensive update for the weekend, but in the meantime, I think the COMPQ chart will continue to serve us very well in regards to sorting out the market's intentions heading forward. 

The implications of a breakdown in COMPQ would almost certainly carry, by extension, to SPX and INDU as well.

My apologies again for the short update at an important inflection point.  Hopefully, COMPQ will serve everyone well enough to get through today's session.  Have a great weekend, and trade safe.