SPX, INDU, TRAN: Bull vs. Bear Counts

The pattern has remained rather ambiguous in the days following the capture of my downside target of SPX 2047-57, and I've been hesitant to make much in the way of strong predictions.

On an intermediate basis, the obvious Elliott Wave pattern that has many bulls excited is the potential of a bullish nest of first and second waves.  I remain skeptical of that pattern, and am more inclined to believe that we're in the ballpark of ending the massive third wave rally that began back in 2011:

It's also worth mentioning that SPX is currently very close to my long-term target for wave iii, as first published back on February 7, 2013:

I've broken down INDU's chart into a bull and bear count to hopefully make the charts a little easier to follow.  First the bear count:

Next the bull count:

SPX is in a similar position:

Finally, a look at TRAN, where the counts are unchanged.  TRAN has yet to tip its hand, and has been stuck in a trading range for months:

In conclusion, this still isn't a market I feel comfortable getting too far in front on over the short term.  Intermediate-term we're still within the zone where we might begin watching for signs that the massive third wave rally which began in 2011 is finally nearing a close.  Trade safe.

SPX and INDU: Revenge of the Fed

Last update made the mistake of trying to predict the market on a Fed day, and was partially successful in that the very short term did indeed head lower -- but then the Fed announced that they would keep interest rates low until every last American had taken out an 84-month auto loan and invested that money in the Nasdaq Composite Index, at which point the market exploded in a rocket-launch rally.

The present pattern remains unusual -- not in the sense of unusual patterns, really, but more in the sense of the patterns that the Fed-driven bull market of the past six years has previously formed.  We haven't seen too many bottoms form in an up/down/up/down/up overlapping fashion like this.  Most of them have been V-bottoms.

While trying to predict this current wave is more than a little challenging at the moment, here's a go at it anyway.  Don't hold me to this, but my best guess at the near-term for SPX is shown by the blue dashed line below.  It should go without saying that "a breakout" means a sustained breakout.  Keep in mind that if the last rally was an extended fifth, then a complex double-retrace is the norm, and sometimes that comes via an expanded flat b-wave that makes a slight new high before the second leg of the retrace.

If the rally was instead a simple third wave, then we've probably already begun the next wave up.

A bigger picture look at SPX via the two-hour chart, and the current bull/bear counts:

And finally, the world's most simplistic chart of NYA, which simply shows that it's hard not to see that last decline as impulsive.  We can view it as an ABC, but it does require at least some degree of creativity to do so.  A gap fill might be in order here before any further downside.  North of 11,055, and it was indeed an ABC.

In conclusion, there are moments when the market forms high-probability patterns, and one can make high-probability calls about future direction -- and there are moments like now.  This has been one of the more unusual patterns we've seen in recent months, and the intermediate term has grown increasingly difficult to predict.  Most of the time, I would just call this pattern a bullish nest and act accordingly, but for some reason, I'm hesitant to view the current pattern that bullishly, and I wonder if the market isn't setting up for something increasingly complex and unexpected.  Hopefully the next few sessions will provide a bit more info to draw from.  Trade safe.

SPX and INDU Updates: Equities Not Following the Usual Patterns for a Bottom

In the last update, I maintained my neutral stance of March 13, but did note a few inflection zones -- specifically 18,000-090 on INDU and 2080+/- on SPX.  Monday saw both of those inflection zones reached, and on Tuesday, the market reacted with a reversal.

I have looked for ways to be bullish about the current pattern, but in the end, I keep coming back to this:

(note:  typo, "blisterning" should be "blistering")

And this (published in the forums after the close on Monday) possible fractal match, along with the current pattern, which doesn't fit the majority of bottoms we've seen:

INDU's 30-minute chart:  (continued, next page)

SPX, INDU, NYA, NDX: Bulls Still Seeking Green for St. Patrick's Day

Friday saw a deep retrace of the previous rally, but managed to hold Wednesday's lows, thus leaving the options covered in Friday's update still on the table.  Like a politician's stance, the market remains ambiguous at the moment.

On another note, I've had the pleasure of enduring strep throat throughout the weekend, so, in keeping with that theme, today's update will be brief and painful.  Wait, that's not what I meant to say...

Since my downside targets were captured and my system has yet to generate new targets, I remain without conviction at the present time -- but I've drawn up a couple potential if/then targets via INDU's chart.  The one caveat I'd add to the bear target is that there is an intermediate trend line crossing just below 17,600 (one can see this line on an hourly chart -- simply connect the October lows with the February lows), so bears should at least stay cognizant of that zone as potential support if 17,600 fails.

Let's take a look at the larger inflection point, via NDX:

NYA's chart is interesting and often revealing, so I've used its daily chart for purposes of examining some of the bull options.  Bulls have quite a bit of ground to cover in order to regain their February glory, but nevertheless, let's take an early look at their potential IF they were to reclaim 11,142 in NYA.

The bear options, in the event of a continued decline, are for an obvious head and shoulders pattern or similar.  The scariest thing about this chart for bulls is the failed breakout and immediate whipsaw, and the collapse back into the noise zone.  For now, though, bulls are still holding the blue uptrend line.

Finally, there's literally nothing to add to Friday's SPX chart.  All I've done here is changed the bull count to red to make it a bit easier to spot.

In conclusion, since no key levels were broken or claimed on Friday, there's very little to add to Friday's update, which closed with:

...downside targets were captured and bulls finally showed that they haven't completely left the building yet.  Most markets are now back into the same "noise zone" territory they've been in since December.  My preferred targets of the past few weeks have all been captured, and my system isn't giving me any new actionable signals at this juncture, so for me, this is a "wait and see" moment for the market. 

As a side note, since I rarely do Tuesday updates:  Have a safe St. Patrick's Day.  In my opinion, that's about the most you can ask for from this particular holiday.  "Happy" St. Patrick's Day is just silly.  In fact, it's a good St. Patrick's Day if you manage to avoid getting broadsided by someone who's having a "Happy" St. Patrick's Day.

Also, if at all possible, avoid hanging around with bears on Tuesday -- they're not too fond of the color green.  Trade safe.

SPX and INDU: Bulls Hold Important Support

In Wednesday's update, I wrote:

We're now into territory where the wave counts become open to a great deal of interpretation, and with nothing in the way of a basing pattern yet, it's difficult to map out the market's exact next move.  The preferred count has kept us on the right side of the trade for several weeks, and netted us roughly 50 points in SPX profits for the decline (to date) -- and sometimes it's tough to ask for much more than that...

Thus, when the wave counts get into territory like this, sometimes it's best to pay careful attention to the trend lines and support/resistance, and not do too much front-running in either direction. 

That session did some grinding in both directions, but by the close on Wednesday, SPX had reached its major uptrend line from the October lows, which I noted in our forums.  On Thursday, it reacted to that line with a solid bounce:

We're still in territory where the wave counts are a bit unclear.  The near-term chart below discusses some options:

INDU seems to be showing a little more strength than SPX, relative to its resistance zones, but did close in the neighborhood of multiple near-term resistance lines, so bulls face a test over the next couple sessions:

In conclusion, downside targets were captured and bulls finally showed that they haven't completely left the building yet.  Most markets are now back into the same "noise zone" territory they've been in since December.  My preferred targets of the past few weeks have all been captured, and my system isn't giving me any new actionable signals at this juncture, so for me, this is a "wait and see" moment for the market.  Trade safe.

SPX, TRAN, INDU: Downside Targets Captured -- What Next?

Last update expected lower prices (likely after a fourth wave bounce), and the downside target zone was easily captured and exceeded during Tuesday's furious decline.

We're now into territory where the wave counts become open to a great deal of interpretation, and with nothing in the way of a basing pattern yet, it's difficult to map out the market's exact next move.  The preferred count has kept us on the right side of the trade for several weeks, and netted us roughly 50 points in SPX profits for the decline (to date) -- and sometimes it's tough to ask for much more than that.  The SPX chart below thus shows a few different options.  By all rights, the bear counts still look more probable than the bull counts.

Bigger picture, the expanded flat B-wave count that we followed throughout January is still alive and well, and for reference, I've annotated it on the chart below.  I stopped discussing this count primarily for ease of communication, because B-waves that make new highs (R.N. Elliott referred to these as "irregular tops") can get quite confusing.  Thus I made the command decision to quit talking about it, and instead focused on the other reasons I suspected we were topping.

 
For INDU, instead of updating and reprinting Monday's chart, I drew up a new one, to get a slightly different and fresh look at things:

In TRAN, we now seem to have confirmation that its rally was a corrective wave.  There are two obvious ways this can fit into the picture, both of which have been previously discussed in this index:

In conclusion, there's nothing in the pattern yet to indicate a significant bottom -- especially since we closed on the lows -- but there is potential for wave (3) to complete at any time.  At the same time, third wave declines can run farther than expected, as evidenced yesterday.  Thus, when the wave counts get into territory like this, sometimes it's best to pay careful attention to the trend lines and support/resistance, and not do too much front-running in either direction.   When we begin to see some small impulsive rallies, that will begin to more strongly suggest basing patterns and potential upside bounce targets.  Trade safe.

SPX, NYA, INDU, TRAN: 2070 Target Captured as Bears Make Their Presence Felt

Friday's decline caught a lot of traders wrong-footed, and the "bearish potential energy" I spoke about last update became reality during the session.

I do hope the updates of the past few weeks have been helpful to readers.  Back on February 27, when SPX was at 2110, I wrote the following paragraph -- and this is about as excitable as I ever get.  Long-time readers know that I'm a pretty laid-back guy, and writing a paragraph like the one below is (for me) the rough equivalent of Jim Cramer repeatedly slamming his fist into one of his sound effect buttons while screaming into the camera:

In conclusion, this appears to be the best opportunity bears have had since 2072 SPX.  If this is a bull wave, then it's likely that this will prove to simply be a fourth wave correction.  If the bears have control, then it will turn into something more significant, and 2058 comes into view as a potential target.  Either way, near-term, prices appear likely to be headed lower, so if you're a bear who's been waiting patiently for another decent opportunity, then this is the best one that the market has presented in a while.

Interestingly enough, SPX closed Friday's session just below 2072, so bears who allowed themselves a few small losses on the way up from 2072 were likely able to recoup all of those losses (with interest) in one fell swoop on Friday.  Especially if they were able to protect profits along the ride from February 27.  So 2058 +/- has now not only come into view, but wasn't too far from Friday's low.

So, with almost 40 points behind us since February 27, shorts can finally breathe a little easier, and have either already captured profits (since Friday's 2070 target was hit), or should look for ways to protect profits. The second target is officially 2048-60, with 2058 being the perfect world number.

To the upside, bears will want to be cautious if SPX can sustain trade north of 2087, though 2095 is the current (most conservative) key bullish overlap.

There are still bull patterns possible, such as the black ending diagonal (bull: i/ii/iii) shown below... but let's face it, that would be too easy for bulls.  There were a lot of traders still looking for higher prices when we were within the SPX 2090-2120 zone, so there is most likely significant overhead resistance in that zone.  As I wrote in our forum last Wednesday:

The wave structure has gone a bit into the realm of unusual, but unless we want to call today's drop an extended fifth of wave C,  bulls are running into the difficulty of "too many waves down." Right now, this looks more like a bear nest.

This pattern continues to maintain decent symmetry, and what we're seeing is potential layered overhead resistance being created as each sudden new drop ratchets the market below the prior support zone. Theoretically, bulls are getting trapped by this pattern.

A fourth wave is still possible and not off the table, but given only the raw appearance of the price action, this doesn't look like a "normal" fourth wave does. Sure, technically, it could still be a fourth. But it looks more like a top.

Resistance, of course, comes from all the (currently) trapped longs who bought each of those dips during that complex wave at the top -- many of whom will probably now be more than happy to sell at break-even if SPX revisits that zone any time soon.  Therefore, the pattern below suggests lower prices are probably needed before bulls have any real chance at a full bailout to new highs.

(NOTE:  Typo!  "1970" should be "2070"!)

A lot of traders were looking for a fourth wave here, to be followed by a fifth wave to new highs.  Now, I can't say new highs are off the table (especially for indices like COMPQ), because they're not -- in fact, I suspect we'll eventually see new highs one way or another somewhere down the line -- but I can say that this most recent decline is most likely (almost certainly) NOT a fourth wave:

The big picture count remains somewhat ambiguous, but my present instinct is that odds are fairly decent that we'll retest the February lows.  Stay aware of the key bullish overlaps, listed earlier, for warnings that new highs may be coming sooner, though.  Be aware that those overlaps will change as each wave completes, but should still mark resistance areas.

INDU's chart below:

Finally, nothing new to add regarding TRAN, except to note that the rally here has continued to look like an ABC for several weeks -- and looks even moreso now.

In conclusion, Friday's first downside target of 2070 was already captured, for an "easy" 40 points of profit.  To reiterate from earlier in the update:  The second downside target looks reasonably likely, and is "officially" 2048-60, with 2058 being the perfect world number.  To the upside, bears will want to be cautious if SPX can sustain trade north of 2087, though 2095 is the current (most conservative) key bullish overlap.  Trade safe.