SPX and INDU: Potential Whipsaw Looming

There's no material change from last update, and the last couple sessions had the overlapping feel of a fourth wave.  The near-term pattern has left itself a couple options.

I'm sorely tempted to favor the path shown in black on the chart below, but it's almost TOO complex a pattern for me to simply come out and say "here's what's gonna happen."  Frankly, the last overlapping wave is extremely difficult to count (difficult even for a fourth wave).  The blue path represents the more conservative course, but keep a very close eye on the potential for SPX to roughly follow the black path.

The black path could see a "pop and drop" open, but the "pop" part isn't required.  As of the moment of this writing, futures are up a few points, but that may or may not stick, of course.

 
The big picture options remain as previously noted:

INDU's simple trend line chart also remains unchanged, with sustained trade north of 18,008 still the next hurdle for bulls to reach the red circle:

In conclusion, there is one decent near-term option for a continuation of the confusing chop we've seen over the past couple sessions -- this is represented by the black path on the first SPX chart, and that pattern would see at least two whipsaws in the immediate future.  The more conventional option (blue path) would simply head up to the target area while unwinding a couple small fourth waves along the way.

Bigger picture, at present we still have to give an edge to the bears, because the near-term waves still fit better with the bear counts, and so far there have been no real surprises.  I've outlined the bear arguments in detail for the past couple weeks, but I will continue tracking the bull options, because the fact is, we've been in a bull market for six straight years.  That's the essence of the bull argument right there -- but six years of bull market does mean that bearish stances are ill-suited to complacency.  For now, though, we'll just keep the bull counts on the back burner until bulls start showing more than the expected levels of strength.  Trade safe.

SPX and INDU Updates

I'm going to let the charts do most of the talking today.  Let's start with noting that the ending diagonal previously-discussed as the bull option no longer appears viable.  Now, that doesn't mean there are no bull options, it just means that the bull pattern would most likely be a triangle, not a diagonal.  A triangle would also explain the reason that the rallies have been corrective -- and the corrective rallies are largely what has led me to favor the more bearish options.

Now, that said, the declines have appeared to be impulsive, which doesn't fit the nature of a triangle, as both rallies and declines should be corrective in a triangle.  Therefore, I'm still inclined to favor the more bearish options, but this isn't a screamingly-clear call here...

Near-term, SPX has followed the "or (2)" path, and that wave may or may not be complete:

One market that leads me to continue granting bears a slight edge is TRAN, which has made new lows for the year:

INDU followed the near-term "best guess" path I laid out at the end of last month:

Note INDU's back test of the broken uptrend line. 

In conclusion, so far, there has been nothing truly unexpected from the market -- in fact, the potential for a double-retrace was outlined all the way back on March 27.  Due to the overall shape of the pattern, odds have to continue to be given to the bears, but we certainly can't say we haven't seen bulls pull out stranger upsets, so nothing would really surprise me at this point in the 6-year bull market.  If bears are going to turn things back down, then -- allowing for the possibility of another thrust to new highs to complete wave C -- the current zone is where that might begin.  Trade safe.

SPX and INDU: The Simple View -- Why Bears Currently Appear Stronger than Bulls

There's been no material change to the outlook, though the market continues to bounce like a dropped ball along 2039 support (each bounce has been lower than the last, as it may be burning through buyers at that support level).  Since there's been no change, let's refer back to Wednesday, which ended with two paragraphs:

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.

Moving on to the charts, we'll start with the big picture for perspective:

Zooming in on the near-term, there are enough waves in place for a complete rally to 2072:

What we cannot foresee, however, is whether the apparent abc to 2072 marks the final end of that wave, or if the rally wave will become more complex:

Do note that in the event that SPX holds 2053 and then breaks out directly north of 2072, then we might consider the potential that the C-wave is extending, represented on the chart below by blue "or (2)?":

INDU's chart covers all the options at once.  Whichever short-term path we take, the market still seems to be pointed lower; essentially until proven otherwise: (continued, next page)

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.