SPX and INDU Updates: Pattern Still Incomplete, and Still Pointed Lower

On December 21, I concluded:

TRAN's break of the flash crash low has far-reaching implications for the overall pattern, and suggests that another leg down is pending for the broad market.  It will take a sustained breakout over the all-time-high in SPX to call that into question, so unless and until that happens, we're going to operate under the assumption that the intermediate edge has to be given to bears. 

I also warned of a potential complex flat, which would rally back toward the top of the recent trading range before declining again -- that scenario was noted as preferred in all subsequent updates, and now appears to be exactly what's happening.  The question of the day is whether we're starting the predicted larger bear leg immediately, or if there's still another down/up/down sequence in store.  I can't answer that for certain, but there are a few things we can watch for, which I'll cover after the charts.

Last update noted that the rally had finally satisfied its minimum requirements after breaking 2076, and that the b-wave was thus free to peak -- and apparently it wanted to do so immediately.

The 30-minute chart I've been publishing for the past few weeks (which kept us firmly on the right side of this trade) was getting a bit cluttered, and StockCharts won't let me zoom out any farther on a 30 -- so I've drawn up a new hourly chart to provide a broader perspective.

INDU presents in a similar fashion.  Here, I'm still using the 30-minute, since the SPX chart above hopefully provides the larger context well enough:

So, what do we watch for to tell us if the more complex flat is unfolding, or if the wheels are instead going to come off the market immediately?  Well, the simple answer is:  We watch for an impulsive rally out of one of the inflection zones.  If we see a clean five-wave impulsive bounce from, say, SPX 1969.73, then we'll be on alert.  That first bounce should give us both a conservative upside target (the conservative target will be the expected target if the bounce is only a simple ABC), and a more aggressive target (which we already have, near the top of the range). 

On December 29, I alerted folks on our forums in a NOT TRADING ADVICE sort of way that it was a good time to start building short positions.  So, if we do not see any decent-sized impulsive bounces along the way, then we simply stay short until we do (also not trading advice), and ride this as a third wave decline. 

In conclusion, in the bigger picture, TRAN remains the fly in the ointment for bulls.  As discussed previously, it appears to have changed trend at higher wave degree (from up to down).  This remains significant because TRAN tends to lead the broad market. 

On the shorter time frames, the pattern still suggests two things:  It's incomplete, and it's pointed lower.  An incomplete pattern pointed lower is not helpful to bulls -- it's like a "to be continued" TV episode; it's essentially a tension on the market, and it seeks resolution in the form of lower prices.  Thus, the best case for bulls appears to be another down/up/down sequence that could then have the potential to find a bottom (again, though, that would be from lower prices).  The best case for bears is the potential bear nest shown as "MB" on the SPX chart, and which precipitates a waterfall decline.  Trade safe.

SPX and Blade Runner Update: A New Life Awaits You at the Off-World Colonies! (And it probably beats this chop zone)

Well, the new year is almost upon us, and with that, we're all reminded to stop writing 2015 on our checks (for those of us who still occasionally use checks, anyway).  Personally, I have yet to emotionally accept that 2015 has already come and gone, especially when I watch Blade Runner, which came out in 1982 and supposedly takes place about 3 years from now ("Los Angeles, 2019").  Back in the 80's, that vision of the "distant" future seemed wholly reasonable.  It's almost ludicrous, though, seen in light of the current reality.  Blade Runner envisioned that by 2016, there would be "replicants" (clones, considered to be sub-human) running the most dangerous jobs, such as mining "The Off-World Colonies," when, in reality, in 2016 the sub-humans are merely running for office.

I think I prefer the Blade Runner future, which I'm pretty sure was correct in its vision -- except for the fact that we got sidetracked into an alternate reality when Alan Greenspan took over at the Federal Reserve, thereby dooming us to this bleak version of the present, wherein we're now facing 2016 without viable replicants, without flying cars, and without pollution levels that keep the skies over Los Angeles dark 24 hours a day.  I guess we still have three years to make all that happen, but technically, the antagonist replicants in Blade Runner would have been created in 2014, so we've got a lot of catching up to do here!

Anyway, I'm ranting, which I tend to do whenever I look at a calendar.  I had big expectations as a young person, since virtually every sci-fi product of the 80's promised us a mind-boggling 21st century.  Well, we're well into it now, and it still stinks.  In fact, I think I preferred the 80's!

Sorry, I'm ranting again.  Fine, let's talk about the market, then.

There really isn't much to add, except to note that the preferred count has continued tracking reasonably well.  Last update, I noted that:

I would have preferred, and would still prefer, to see SPX clear 2076 before its next meaningful move

And that has since happened.  Because we're dealing with a complex flat, and we can't be entirely certain (ahead of time) where the b-waves will show up within a flat, there's an element of unpredictability inherent in this pattern, and that won't change until we're clear of the chop zone.

From the standpoint of sentiment, last night, I provided the following bit of speculative commentary in our forum:

The more I think about it, the better this setup is from the standpoint of "max pain" to participants. Remember this paragraph from November 23, which was around the time I starting thinking we'd get some type of complex wave in this price zone:

The market tends to cycle between trending waves and oscillating waves, and that's one of the ways it steals money from us: Often, after the market has conditioned everyone to expect minimal moves, we get a huge move (think of the recent crash wave, and how many bears closed their positions way too early) -- and then, after we've become conditioned to expect huge moves, we get minimal moves. Rinse and repeat until everyone has lost money.

If we continue to unwind this complex flat, especially if it plays as shown on the SPX chart (still one more down/up/down cycle to come), then by the time we get the next REAL move, everyone will be frustrated and still expecting a continued cycling move -- or simply too afraid to take action after all the chop... the exact same thing that happened to most players just before the flash crash.

So, we'll leave that as the traditional "In Conclusion" ending (just go back and put "in conclusion" somewhere in there.  Like this:  "If we continue to unwind this complex in conclusion flat..."  Err... I guess you'll need to use your own judgment.)

And with that, we conclude the updates for 2015 (or whatever year it ACTUALLY is -- either the 80's were lying, or the calendar's lying.  And we know it couldn't have been the 80's!).

In any case, no matter whether we're moving on into 2016 or 1997, I sincerely wish all my readers/supporters a healthy and prosperous New Year!  Trade safe.

SPX and INDU: The Bottom Line is Bulls Need a Breakout

There's no material change from the last few weeks of updates, which largely anticipated an ongoing chop zone.  I realize that chop zones are often frustrating for traders, but it's actually no mean feat to spot one forming early-on.  Thus, even though several targets have fallen a hair short along the way, I'm not displeased with the overall performance of the preferred count during recent weeks.

The caveat at this moment would simply be that the farther one gets into a chop zone, the more questionable the patterns become, and the more difficult prediction becomes.  I would have preferred, and would still prefer, to see SPX clear 2076 before its next meaningful move, but we have reached an inflection point here, and it's not out of the realm of possibility for Christmas Eve to have marked the high for the current wave.  The biggest predictive challenge inside a chop zone like this one is that it's, frankly, impossible to predict when and where the b-waves will form (since b-waves don't follow the same structural rules as impulsive waves, they rarely lend themselves to being predictable).

All that said, the chart below is still my best-guess, but I may need to adjust this slightly if 2076 continues to contain the market.

INDU suggests that the best hope for bulls is an ending diagonal c-wave, but that pattern still suggests a new low below the low of red i.

In conclusion, there are always outlier patterns, so one can never grow so complacent as to say something's "impossible," but an immediate breakout from the market's current position does look unlikely.

Essentially:  The only immediately bullish pattern possible in INDU would be if red B/2 on the chart above is actually the smaller-degree b-wave of an expanded flat, which would instead make "red i" ALL OF "bull: C."  But again, that presently looks less likely.  A sustained breakout through 18,000 is still required for bulls to cast doubt on the bear scenarios and put themselves back in the running.  Trade safe.


(Very late expansion chart for this update -- I just realized that I forgot to even show the preferred count on INDU's chart.  Sheesh, holidays!  Anyway, I guess I figured I outlined it clearly on SPX, so I was sort of assuming it went without saying that INDU would be expected to follow a similar path. Nevertheless, here it is in black and white (aka: "blue and green")):

Merry Christmas! (and SPX Update)

There's no material change to the outlook since last update, except to note that SPX may be following the complex flat path... the first meaningful resistance hurdle to this path is 2055-60 (inflection point noted with black "bear ii").  If SPX clears that, then the zone around 2076 becomes the lone remaining hurdle to the (b) shown below.

Of course, in the event that SPX could sustain a breakout over the all-time high (unlikely to happen in the next two sessions, of course), then we'd need to revisit everything.

Beyond that, Christmas is almost upon us, and it's become something of a tradition to link to a piece I first published a couple Christmases ago, titled:  A Christmas Story -- Reflections on What Matters.  If you're looking for something that goes a bit beyond the market, it might be worth a read.

I wish all of my readers a happy and safe holiday, and would also like to thank you for, quite frankly, being among the best darn readers on the planet.  I haven't been keeping up on my thank-yous lately, but I greatly appreciate those of you who have taken a moment (or several moments -- you know who you are) to send something my way.

If I may be so bold this holiday season, I'd also like to remind traders (particularly the Type A personalities among us -- yours truly included) that it's easy to get so wrapped up in the day-to-day market grind that we can sometimes lose sight of what it is we're trying to accomplish, and what it is we're actually providing to our families.  Sometimes a few hours of our time and attention, and a few small kindnesses, can mean so much more to the people in our lives than that next winning trade might. 

I'll leave it at that.

All the best to you and yours this holiday.  And, of course, trade (and drive!) safe.  

TRAN Warns of Potential 4000-Point Decline in the Dow Jones Industrials

Things just got interesting again.  Last week, TRAN broke its flash crash low, and that's important, because it gives TRAN's year-long decline an impulsive appearance.  This is problematic for long-term bulls, because a decline that takes a year is obviously not "short-term," and only occurs at significant wave degrees.

Let's start off with TRAN's chart, and then look at the implications for INDU and SPX:

Interestingly, the large complex flat I theorized back in October for INDU is starting to look more and more reasonable.  If this count is correct, it implies a downside target of 13,154:

INDU may be forming a complex flat at lower wave degree (short-term) or could be forming a very-bearish nested 1-2 count -- we don't know just yet.  But both options are ultimately bearish.

The same possibilities exist in SPX, but again, both are intermediate bearish:

In conclusion, TRAN's break of the flash crash low has far-reaching implications for the overall pattern, and suggests that another leg down is pending for the broad market.  It will take a sustained breakout over the all-time-high in SPX to call that into question, so unless and until that happens, we're going to operate under the assumption that the intermediate edge has to be given to bears.  Trade safe.

SPX Update: Chop Zone Continues

Since last update, the Fed indeed raised rates, which is exactly what some bulls claim they wanted, because the Fed is "supposed" to raise rates during bull markets -- so (try to follow along with this) the fact that the Fed raised rates confirms that this is a bull market, and therefore: bullish.

That's sort of like saying:  "We have a theory that the sun is really hot, but we're not sure, so we're going to land a probe there and see if it melts.  If it melts, then the sun IS really hot.  And that would mean we win!"

Another argument I've heard is that rate increase amounts to increased revenue for the government, which amounts to increased SPENDING by the government, which amounts to economic stimulus, which leads to more money for everyone and thus strengthens the economy.  The problem with this logic is that it's stupid.

What?  Oh, sorry:  The problem with this logic is that it doesn't seem to acknowledge that the money first has to come from somewhere.  In this example, it comes from the economy.  So, even if the government were to turn around and spend 100% of the revenue it takes in, that's still not actually stimulating anything, it's just moving money around.  (Money that comes from the economy and then goes back to the economy results in zero net gain to the economy.  It's like standing in a pool with a bucket, filling the bucket with pool water, and then dumping that water back into the pool:  You're not actually adding any water to the pool!  You're just wasting everyone's time and creating "busy work" for yourself so you can feel important and tell your friends that it's entirely up to you to keep filling the pool... at least, that is, IF they want to keep swimming in it!  Those ingrates.  This example is, of course, absolutely NOTHING like what the government does.  Ha.  Ha ha.)

In any case, the point is that the Fed raised rates, and we can all argue about whether that's bullish or bearish or just something they pretty much had to do at this point -- and the market doesn't care.

Chart-wise, the chop zone continues to look like a chop zone, and no new information is conveyed within a chop zone -- so, accordingly, I'll continue sticking with my original read that 1993 is unlikely to be the "final" low of this move, although the pattern is doing its best to make things even more confusing.  Let's find out why, starting with the 30-minute SPX chart:

The hourly chart contains some additional discussion:

In conclusion, on one hand, it still doesn't appear that 1993 is a sustainable bottom, so ultimately, I believe the market is headed lower.  On the other hand, very short-term, the proposed C-wave "should" have continued higher than 2076, so for now, I'm going to assume it's incomplete and thus could still headed higher BEFORE heading lower.  The outlier possibility is that 2076 represents the top of a failed C-wave and complete as-is, which would potentially be quite bearish.  Trade safe.

SPX and BKX Updates: Fed Day

Last update concluded with:

...my "perfect world" count would see us rally back up to retest the high again, then decline back to test the most recent relative low (either Friday's low, or a minor new low this week). 

SPX made a minor new low, then launched into a strong rally, so that "perfect world" outlook is looking reasonable at the moment.

Beyond the charts:  Today is, of course, the infamous and aptly-named Fed Friday (which often falls on Wednesday, due to a repeating error on the government calendar).  The investment world is anxiously awaiting the events of this afternoon, when Janet "Gellin' Like Janet" Yellen will emerge from the Fed's Reality-Deprivation Chamber, where she's been sealed since birth; if she sees her shadow, the Fed will hike interest rates for six whole weeks, or until such time as the economy weakens further, whichever comes first.

Bulls are hoping for rates to remain steady at -4000%, which is the same level they've been since the earth cooled.  Some folks have been saying that bulls want Janet to raise rates, because: reasons.  But regardless of what bulls may say publicly, the reality is that bulls are secretly hoping Janet will LOWER rates to an economy-stimulating -18,000%, while at the same time launching QE IV: The Revenge of the Fiat, just in time to compete with the latest Star Wars movie. (Or is it QE five?  Six?  I've lost count.)

Anyway, Fed Fridays are usually volatile days, frequently punctuated with whippy price action that reflects the underlying bull and bear angst, and often burning one side badly... just before burning the other side badly.  Accordingly, we're going to simply stick with my original read that we'll rally back to retest the recent high before dropping back down.

Obviously, if we experience a sustained breakdown of Monday's low, then all bets are off for a retest of the high; and on the other side of the trade, if we break out over 2117, then it's possible that ALL OF Bull (iv)/2 is complete.

Here's a simpler hourly chart of SPX:

And finally, another look at BKX:

In conclusion, the market has followed my expectations from the last several updates, albeit not to the penny, but well enough.  Given that, and the fact that it's Fed Friday, there's no reason to form any new theories.  Trade safe.