SPX and INDU: Bears Await Confirmation

As many of you know, Ben Bernanke recently started a new blog.  His first few blog posts were just pictures of Janet Yellen's head Photoshopped onto a donkey body, but now he's posting more serious topics.  At present, he's published parts I and II of a 789 part series titled, "Why the Fed Sucks without Me."

No, sorry!  That's another April Fool's joke.  He's published parts I and II of a series titled: "Why are interest rates so low?"  One of the most interesting paragraphs from part II is reprinted below.  This is written in the context of whether or not the U.S. faces "secular stagnation":

The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. (I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.) Suppose that, because of secular stagnation, the economy’s equilibrium real interest rate is below minus 2 percent and likely to stay there.  Then the Fed alone cannot achieve full employment unless it either (1) raises its inflation target, thereby giving itself room to drive the real interest rate further into negative territory by setting market rates at zero; or (2) accepts the recurrence of financial bubbles as a means of increasing consumer and business spending.  It’s in this sense that the three economic goals with which I began—full employment, low inflation, and financial stability—are difficult to achieve simultaneously in an economy afflicted by secular stagnation.

Again, the above is in the context of "secular stagnation," and Bernanke goes on to say:

Does the U.S. economy face secular stagnation? I am skeptical, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today.

Now, I'm certainly not a former Chairman of the Federal Reserve, but I believe it's quite debatable whether the U.S. economy "looks to be well on the way to full employment."  Unless, of course, we count the fact that people with doctorate degrees are currently achieving "full employment" in jobs with titles such as Park's Official Gum-wad Remover.

Anyway, I don't have time to go into that in more detail today, but I am working on a future piece that will address some of these issues in more detail, and which will encompass QE, the Fed, and the finer nuances of removing gum-wads from under park benches.

Let's get to the charts.  On 3/27, I noted on the INDU 30-minute chart that there was potential for a retrace all the way back to 18,000, and I stuck an "Alt.: (2)" label there.  It now appears that count played out, and the rally to 18,008 has the appearance of a three-wave corrective rally.

Here's another look at the daily chart for context:

And another look at INDU's simple trend line chart:

SPX's near-term chart (2 minute).  I published this yesterday morning in our forum, suggesting that wave (2) may have completed at 2089:

Finally, SPX's daily chart for context:

In conclusion, I continue to believe that the market is on the cusp of a significant decline, and that bounces should be sold.  Again, though, I would be remiss not to mention that the market has yet to confirm this thesis (largely confirmed below 2039 SPX).  On the bull side, the first step for bulls at this point is to sustain trade north of 2089, though this would still leave bears additional options.

The bearish potential energy in this chart is now significant, and in the event that SPX sustains trade south of 2039, it is likely to produce a strong decline that may not let shorts back in, and may not let anyone attempting long positions out (except at a loss).  Third wave declines can be fast and relentless.  Trade safe.

SPX and INDU: Detailed Outlooks across Multiple Time Frames

Last update expected the market was in the throes of a fourth wave, with the potential for another wave up.  Friday's session had the appearance, and the frustrating feel, of a triangle.  Most likely this was a triangle B-wave for wave B of 4.  The nice thing about triangles is that they almost always appear as the penultimate (second to last) wave in a structure.  In other words, when you see a triangle, you should get ready for the thrust out of the triangle to be the end of a larger wave form, meaning it will ultimately reverse.

I've prepared a lot of charts for the weekend, so let's get right to them.  Let's start with the SPX 2-minute chart and build from there:

No change to the SPX 30-minute chart:

And the SPX 2-hour chart.  Note the uptrend from the October lows has broken, and that this was a three-point validated trend line, which means that unless bulls can reclaim it directly, this break has the potential to be significant and meaningful:

Next, let's take a look at INDU in detail (continued, next page)

SPX and INDU: Bears Having Fun

Last update noted that the bear count remained very slightly preferred, but that there had been no confirmation from the market yet.  Later that session, confirmation arrived in a big way, as INDU dropped through both noted key early confirmation levels, and the decline accelerated.  By Thursday, it had broken its prior March low, which officially confirmed the bear count:

Let's take a couple more looks at INDU, first via the old trend line chart, which shows INDU flirting with the previously-highlighted critical support zone.  Bulls likely need to hold that zone to stave off a complete retrace of the February rally.

And next, INDU via the daily chart, where the preferred intermediate count (as covered repeatedly for the past few weeks) remains intact:

Finally, SPX.  By all rights, it's difficult to imagine a pattern where SPX does not ultimately break the March low of 2039:

In conclusion, the market was indeed tipping its hand with the pattern from the March lows -- as I mentioned a number of time over the past few weeks, it was unlike any meaningful bottom we've seen from true bull waves (going all the way back to the start of the bull market in 2009).  My apologies to readers for not screaming more loudly to short the top, but let's face it, we're all a bit conditioned by years of bull market, and coming across as overly bearish when the pattern isn't crystal clear is still a little challenging for those of us who are NOT "perma-bears" by nature.

At present, it appears that the decline is not yet complete -- and it is potentially far from being complete, in the event of the blue path shown on INDU's chart.  While it's possible that the current small blue wave 4 could become more complex and rally further, this is hardly the spot for any degree of bullish complacency.  Trade safe.

SPX and INDU: Rally, Retrace, Rinse, Repeat

We have an interesting situation with the recent rally off the low, and it remains unlike any decent bottom this market has seen since 2009.  As we can see on the INDU chart below, there have been a total of (4) one-day wonder rallies, and three of those were almost entirely retraced over the next 1-2 sessions.  The only move that has stuck (so far) is the Fed rally of the 18th.  Take that off the chart, and INDU would be flat for the past couple weeks.

For the time being, I'm going to continue publishing both the bear and bull counts, since the decline is (so far) only three waves.  First is the bear count:

 

Next is the bull count.  Wave 4 has enough waves in place to bottom at any time, if this is simply a corrective decline:

No change to the bigger picture:

SPX has reached the vicinity of its downside inflection point.  If the decline is a correction to an ongoing bull wave, then it may be complete or nearly complete (and even for a bear wave, there is at least potential for a complete first leg):

In conclusion, the rally since mid-March has been underwhelming in comparison to most of the bull waves we've seen in this market.  As of yet, though we still do not have a larger impulsive decline from a high, so stating that "the top is in" with any conviction would still be premature.  I remain very slightly more inclined to favor the bear counts, but certainly not in any sort of stubborn way -- it's simply what seems to fit the overall picture a bit better for now.  Trade safe.

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)