SPX, BKX, INDU: BKX Captures Target; SPX Causes Blindness

Wednesday's update suggested it might be time for a correction, and that's what we've had since then.  The pattern leaves a lot to be desired at this stage, it could be an impulsive decline, or it could be a hat, or a brooch or a pterodactyl (See: Airplane!). 

Let's start with the market we felt we "knew" was going higher:  BKX hit its 76 target to the upside on Friday.  It launched strongly after the jobs number, while SPX stalled -- this is due to the strong dollar being good for financials, but bad for overseas profits.

(Incidentally, I had to recreate this entire chart from scratch, complete with lengthy annotations -- complete with bad puns -- because Stockcharts overwrote my original chart with a blank chart.  Thanks, Stockcharts!)

  
Let's take a look at SPX, and see if it doesn't make us want to shoot ourselves in the head.  You might want to cover your eyes for this next chart:

Moving right along, here's a much simpler chart of INDU:

In conclusion, due to the fact that SPX's chart pattern looks like it was drawn by angry preschool children, it's challenging to know for certain whether the recent decline is the start of at least a modestly-deeper correction, or if it's merely another fourth wave slop correction.  I'm inclined to lean slightly toward the impulsive decline, and think that the correction probably isn't finished yet, but don't hold me to that.  Hopefully the next few sessions will help things clarify a bit.  Trade safe.

SPX and INDU Updates: A Closer Look at the Big Picture

In the last update, we talked about the potential that it was at least possible that the rally might finally be due for a breather, perhaps after a minor new high.  We got the minor new high, but so far no real signs of a correction, although I'm withholding judgment on whether a correction will begin from this zone or not -- the minor new high was not unexpected, so it wasn't enough to completely toss out the idea of a correction (yet -- that could change in today's session, though).  At this point, we're into a zone that qualifies as a retest of the all-time-highs, so we can't (and shouldn't) rule out the idea that this zone could provide resistance.

INDU's long-term chart details the two odds-on favorite counts at this point:  Either this rally is Wave B-up of IV down, or ALL OF IV down is complete already.  A lot of analysts were calling for the start of a new bear market at the August lows, but it turned out to be prudent to continue reminding readers that a fourth wave correction fit the wave pattern -- and the expectations and projections from earlier in the year -- just fine.

Gotta admire the human tendency to want to believe the market will move in a linear fashion (bullish near tops, bearish near bottoms), despite the fact that observation repeatedly shows that this is rarely the case.  That's one of the reasons I'm refraining from getting too bullish here near resistance.  We stayed bullish from about 1880 until 2095 -- and 205 points of profit in about a month is probably plenty, so there's no need to push our luck here by becoming pig-headed.  Either the rally will keep running, or it won't -- we'll figure it out as it unfolds.

A few folks on the forum have been asking if this could be an ending diagonal (bearish wedge), and the answer is that, sure, it could be -- but IF it is, then it probably still needs another wave up.  The chart below is NYA, but outlines some of the qualifiers I'd look for in an ending diagonal vs. an expanded flat.  The bull count is that that overlapping mess is a very bullish nest of 1's and 2's that just runs straight to the moon:

In conclusion, the market is in the resistance zone from the all-time-high, but if this rally constitutes a resumption of the primary bull trend, then that zone may not provide any resistance.  If it's the B-wave of a complex flat (either intermediate-term, as shown on the second INDU chart; or near-term, as shown on the NYA chart), then this zone could offer "surprise" resistance.  Also keep in mind the USD/JPY chart discussed in Friday's update, which still has not cleared its resistance zone.  The bottom line is that this isn't the type of place I'd be willing to bet the farm in either direction.  Essentially, this is an inflection zone, and the coming sessions are make-or-break for any bear case (near-term or otherwise), and for any bull case.  Trade safe.

SPX and RUT: Time for a Correction?

Last update, we talked about USD/JPY, and the fact that it hadn't yet signaled the all-clear for equities bulls.  In today's update, we'll go a step further, and entertain the idea that a correction may be due for equities.

Let's start with the 30-minute SPX chart.  This chart has kept us looking for higher prices all the way into 2090-95 -- and while higher prices are still possible from here, there are currently no new high-probability targets.  Sometimes that means that a move is just about out of steam for the moment.

For the record, I'm pretty hesitant to call for a correction against this move, but I'm going to take a stab at it anyway.  Keep in mind that it's entirely possible this rally will just keep steamrolling bears, and there's no accounting for (or anticipating) unusual or record-breaking waves -- but nevertheless, below is one near-term corrective possibility.   Based on the near-term pattern, it's quite possible for SPX to make another small head fake higher before embarking on something akin to the correction shown below.

Finally, RUT presents an interesting pattern, inasmuch as it's difficult to count this as a complete move.  It's thus most likely either a very bullish nest of 1's and 2's (the reason I mention it's possible for the rally to keep rolling), or an expanded flat.  The expanded flat seems more reasonable, which is why I'm suggesting that maybe, just maybe, we'll have a correction soon:

In conclusion, RUT makes it difficult to find a complete bear wave just yet, so I'm inclined to think that the rally isn't entirely complete -- but it might be due for a breather, either immediately or after a minor new high.  The most bearish pattern does lead back to a test of the lows, so if the market starts correcting substantially, we'll track that in real-time and try not to jump the gun.  Trade safe.

SPX, INDU, BKX, USD/JPY: No "All Clear" for Bulls Just Yet

So here we are, 217 points off the low.  China cut rates.  The Fed decided not to raise rates, or at least postpone a rate increase, or will raise rates and keep rates the same all at once (depending on when you talk to Janet, and what sort of mood she's in on that particular day).  The Bank of Japan is maintaining the status quo.  Everyone is expecting SPX 2300 by next Thursday (weather permitting); bears are finally capitulating; and my last published upside target of 2090-95 SPX was captured.

So, the questions everyone wants answered now are some variation of:  Is there any more significant upside remaining; if so, how much?  Or is the rally over?

And the answer, as far as I'm concerned, is a resounding:  "I don't know."  I want readers to understand that, from here until such time as the market declares its next intention, in my opinion, projections can only be speculative.  Despite the massive rally, arguments can still be made for the bear case.  Arguments can also be made for the bull case.  But the fractal, at this exact moment in time, could be viable as several different things.  It could be a complete/nearly complete bear fractal, or it could be an incomplete bull fractal.

The funny thing is:  When we were near the all-time-high earlier this year, I began leaning bearish when lots of folks were still bullish.  AFTER the market dropped, then the naysayers turned bearish -- too late.  I was bullish on the retest of the crash low last month, when lots of folks were still bearish, and I continued to lean bullish for 200+ points.  Now that the market has rallied those couple hundred points, lots of folks have turned bullish.  Is it again "too late"?  Well, I'm not sure.  But it's certainly possible.

When I look at equities charts, I'm inclined to think the rally may have a bit farther to run, but the chart that has me cautious here is USD/JPY.  USD/JPY is highly correlated with equities, somewhere in the neighborhood of 80% correlated in recent years, so this is worth paying attention to.  For purposes of illustration, I've outlined the bear count on the chart below.  This is certainly not the ONLY count, but until bulls can sustain a breakout, it probably has a slight edge:

Now, even if the bear count is in play on the chart above, equities can certainly continue to rally without USD/JPY rallying too.  Even 80% correlated means 20% total chaos, so this isn't a nail in the coffin of equities.  But, again, it's worth watching heading forward, and it's keeping me from joining the "SPX 2300" camp just yet.  A sustained breakout (not a head-fake, obviously) might change that, and signal more of an all-clear for equities.

One potential that falls short of being a "rah-rah, to the moon!" count is as shown on October 16.  This option might fit well with a deep decline in USD/JPY -- that is, if such a decline were to occur, of course:

BKX came within .86 of its preferred target so far:

Finally, SPX has captured every target I've published for several straight weeks.  At the moment, I have no strong opinion, because the pattern could be any of several things:

In conclusion, right now, there are more questions than there are answers about this market.  The pattern could be several different things at this stage, and getting married to one of the options is probably not advisable at this moment.  While bulls have been running with the ball, USD/JPY does warn that there is at least potential for things to slow down or reverse.  The pattern in USD/JPY isn't exactly a "lock," though, so perhaps bulls will break out there and erase any concerns.  The bottom line is that all of that remains to be seen for now.  Trade safe.

INDU Long-Term Trend Line Update

Since last update, the market has done nothing but grind sideways, so there's very little to add.  Feel free to refer back to Monday's update while we await word from the FOMC, but in the meantime, here's an updated long-term chart of INDU:

Trade around FOMC meetings can be filled with whipsaws and head-fakes, and the market does offer a few possibilities for such over the coming sessions, several of which I'm tracking, but which are probably too confusing to try and cover in advance -- so I'll update them in real-time as the move unfolds, and may or may not provide a "bonus" update on Thursday (depending what happens today).  Trade safe.

SPX, COMPQ, NYA: A Bigger-Picture View

On Friday, SPX captured the "textbook" target of 2071, first published two weeks ago.  This came on the back of the preferred count's prediction (from September 21) that SPX would reverse from 1865-1880 and run up to the 2040 zone.  All in all, it's been a pretty solid month for the preferred near-term count.

Here's where I would caution readers:  Sometimes I can interpret one portion of a fractal pretty clearly, but then have to try and "puzzle piece" that portion into the larger fractal, which may not be as clear.  The last six weeks or so have been an excellent example where the fractal at one wave degree seemed fairly clear to me, but the larger wave degree seems a bit less clear.  It's tempting as an analyst to take a strong stance and pretend you know what the market will do at all times, but the reality is, nobody knows that.  In other words, please don't assume that simply because the last 300 or so SPX points have followed the preferred count's path that the big picture is "in the bag," as they say in the bagging industry (or wherever people say that).  The big picture fractal is decidedly less clear than the near-term fractals have been (kind of funny to call 300 SPX points heading both directions "near-term," but I'm not sure what else to call it).

Let's start with an interesting big picture chart.  This is a chart I hadn't updated since 2013, and I stumbled across it this weekend in an old chart-book.  What's interesting is the very-long-term trend line, shown in blue, which runs all the way back to 1974.  That's 1974 as in the year John Denver's Annie's Song was at the top of the charts.  You know the song, it's about population explosion (lyrics: "You filled out my census, like a knight at a florist...")

Over the past few weeks, I've been looking for earnings plays, and that involves scanning charts of individual issues that I wouldn't normally look at (obscure companies with names like "Jumping Turtle Consulting Management and Motorcycle Repair, Inc., LLC, Co." (symbol: *$&#??)).  While doing this, I've really noticed that stocks were sold indiscriminately during the crash, but there's been a focus on perceived quality as money has come back into the market. That's why the blue chips are outperforming, while a fair number of more speculative issues are still near or below their crash lows.

This is pretty self-evident when one looks at a chart comparing the broad-market-based NYA vs. SPX:

A long term chart of SPX provides some additional perspective:

Finally, a quick look at the 30 minute chart, updated only with Friday's price action.  What's interesting on this chart is SPX's break above the black trend line.  Bears need that to whipsaw -- although a whipsaw won't guarantee downside follow through, if that trend line acts as support, it would be decidedly bullish.  Note Friday did a little test of that line, and bounced, but there's too little action since the break to be informative:

In conclusion, the market is in an intermediate inflection zone, and the next few sessions have the potential to make-or-break the bear case.  Trade safe.

SPX, INDU, BKX: New Bull Leg, or Complex Flat?

Let's begin by reviewing some of the updates from this month, with some additional commentary.  First up is October 16:

Bigger picture, let's not get too focused on the (c)-wave count as the "only" count. There are definitely bull options for this to be a third wave, so there's no need to sell every new high. The worst disease for bears to get right now is "Fear of Missing the Top," because this leads to emotional trading and bad decisions. Tops are usually pretty clear. Worst case, you get something like the Fed Spike we had last month and an abrupt reversal. So what. That move made the market's intentions obvious immediately -- and there was still plenty of money to be made following the preferred count into its target zone of 1865-80 SPX.

As noted previously, even a bearish c-wave could extend as high as 2071 (and a bull wave would make new all-time highs), so without an impulsive decline (and a corresponding top) to act against, front running a wave like this can be hazardous to one's account, especially since there are no clear stop levels.


I haven't been front-running this wave; I've been waiting for an impulsive decline to act against.  I haven't been trying to "predict the top." I've been letting the market lead, and I trust it will tell me when it's time to flip short.  I learned this approach the hard way, as I imagine many bears are learning it now.  For what it's worth:  The upside for bears is that often we don't learn except from our mistakes -- when we win, we don't really think too hard about what we could have done better, and no growth takes place.  But when we lose, we truly challenge ourselves to grow and improve.

Back to the updates:  Do we want "long-dated predictions with conviction" during an unpredictable wave? Or do we want to protect our accounts and/or make money? My goal -- especially during a wave like this one -- is the latter. The position of this wave is ambiguous in the big picture, and there are at least 3 wholly viable big picture options here. Because of this, I've been watching the ST waves to determine if the pattern looked like a top -- and I simply haven't seen one yet. That has led me to consistently lean toward the idea that we were still headed higher, and I believe I've conveyed that:

10/9: "In conclusion, there are several upside inflection points for the bear count -- but bears should keep in mind that we've never been able to rule out the possibility that Wave IV completed at the crash low. The preferred near term count has had us looking up since SPX reached the target of 1865-80, so it's not as if we've missed out because we were "too bearish," as many others were -- it's simply a good idea to let the market lead now, and wait for clear signals."

10/12: "We're into a zone where we should probably at least begin watching for topping action, though one formula suggests this wave could run as high at 2071 +/- before experiencing any correction more significant than the one we saw on October 2 -- so Friday's warning to "let the market lead" remains in effect, at least until such time as it leads us to a more clear suggestion of a correction."

10/14: "In conclusion, we can't rule out an immediately bearish wave -- i.e., we can't rule out the idea that ALL OF (c) is complete. However, that presently appears to be at least a slight underdog to the idea that (c) (or "3" for the bulls) is still unfolding. If bears begin claiming levels that should be acting as support, then we may have to give bears more credit."

10/16: "The last signal was to buy support, and there's nothing to reverse that signal yet."

10/19: "It's quite possible there's more room for the rally to run, and my instinct is that it probably will run at least a bit farther, possibly after a correction."

10/21: "There's just nothing to add based on the recent action, except to note that the longer SPX hangs around the current price zone, the higher the odds that the current wave extends. As I've noted on several occasions, the "textbook" target for the current wave is 2071 +/-." and: "Bears should remain cautious if SPX can sustain trade north of the blue dashed resistance line."


As I wrote the other day (in our forums): Maybe I'll miss the top by a few points. Heck, maybe we'll open down 57 points tomorrow, and the perfect entries will all be gone. I'm okay with that. All I want is an impulsive decline that fits as an A or 1 wave as a level to act AGAINST, so I'm not shorting blindly into a freight train rally in a market that has left its options open.

Believe me, if I start to see something that says "short this pig NOW!" you guys will be the first to know.

So, where are we now?  Well, although bulls will likely feel pretty good about today, the market is still keeping its intermediate options open.  Let's start by looking at the complex flat I posted a few days ago.  This count has taken the lead for the available bear counts; while the bull count remains that Primary IV bottomed at the crash low:

One index to keep an eye on here is BKX.  BKX may help determine if SPX, et al, are going to continue their respective rallies immediately:

Finally, the 30-minute SPX chart.  If the current rally in futures sticks, SPX will exceed the 2071 target that I began talking about back on October 12.  One potential new target is discussed, but extended fifth waves can be notoriously difficult, so we'll see how it plays:

Finally, a late addition:  a simple, but interesting back-test is underway:

In conclusion, we caught the exact bottom of this wave, and the near-term wave patterns have kept us on the right side of the trade for the entire rally.  We're getting into a zone where the all-time high is at least close enough to function as a level to take action against, but that, of course, does not in itself guarantee that the rally will end.  Trade safe.