SPX and RUT Capture Downside Targets

Yesterday saw the capture of the preferred count target zones in both RUT and in SPX.  Folks always wants to know "what's next?" -- but this is a good moment to relax and enjoy the completion of some very successful trades.  As I wrote last night in our forum:

Random Trading Psychology Thought: Sometimes it's a good idea to take a moment to allow a big victory to settle in before rushing off to fight the next battle. Daily study is a discipline, but never-ending daily account expansion is impossible, and trying to achieve it only leads to ruin.  In other words, after a big win, taking a victory lap with the attitude that "I won that round, so I don't NEED to know what happens next" is often beneficial to one's account. In my humble opinion, of course.

Accordingly, we're currently in "victory lap" territory:  The decline might be complete, or it might not.  As I've said for years:  We don't need to know what the market will do every minute of every day, we only need to have a good enough idea often enough to make money.  And, of course, the discipline to both manage our risk, and to know when to take action and when not to.

That said, if I were forced to pick an outcome, I'd say that the odds probably still favor further downside before it's all said and done -- I'm just not sure how actionable that is at this exact juncture.

One potential warning for bears is that not only were downside targets captured, but RUT actually retraced all of yesterday's drop and then ended the session in the green.  That type of price action can be a signal of a near-term bottom, so bulls might take control of things for a spell.  If bears can sustain a breakdown, then that bullish signal would be rendered null and void.

Note that RUT bounced almost perfectly off the dashed blue megaphone line, which was highlighted as potential support back on January 8 (that line was, in fact, what led me to the 975 +/- target zone in the first place).  In any case, that support line was, and remains, the dividing support zone between targets 1 and 2.  In other words, if bears can sustain a breakdown there, then we should probably look towards target 2.

SPX captured and exceeded its 1825-35 target zone -- that target was arrived at using the "eyeball method" (the "eyeball method" involves looking at the wave forms, studying how they relate to the overall chart, and then deciding where the market's going from there.)

In conclusion, SPX and RUT have both captured their preferred targets for significant profits, so now we're going to watch what happens next and let the market declare its next intention.  As I mentioned, if I was forced to pick a side, I'd be inclined to think that the decline isn't done in the bigger picture -- but just about anything is possible over the near term here, and a decent bounce would be quite reasonable.  Trade safe.

SPX, INDU, XVG: 25-Year Chart Suggests Major Inflection Point

While I've remained consistently bearish for 200 points of decline in SPX, the waveform has finally worked its way into a position where it has enough technical structure to at least allow for the potential of a complete decline wave.  Thus, it's not a bad idea for bears to be cautious at current levels, and allow the market some room to bounce, and possibly to form a complex correction.  I've detailed one version of a complex correction below, on INDU's chart:

SPX might follow a similar path.  Frankly, there's not enough structure (in the form of a bounce) to consider this as anything other than speculative at the moment, and it's entirely possible for the market to keep dropping here -- but again, it's certainly prudent for bears to at least remain somewhat cautious now, in the wake of 200 points of profit.

On the chart below, I've noted the outside possibility (in black) of enough fourth and fifth waves to form a complete decline.  I'm not favoring that view, but it's technically possible:

Last but not least, this weekend I took a detailed look at the Valueline Geometric Index ($XVG). 
The Valueline.com website descibes this index as follow:

On June 30, 1961, we introduced the Value Line Composite Index. This market benchmark assumes equally weighted positions in every stock covered in The Value Line Investment Survey. That is, it is assumed that an equal dollar amount is invested in each and every stock. The returns from doing so are averaged geometrically every day across all the stocks inThe Survey and, consequently, this index is frequently referred to as the Value Line (Geometric) Average (VALUG). The VALUG was intended to provide a rough approximation of how the median stock in the Value Line universe performed.

The chart below provides an interesting look at the long-term potential of the current wave structure in XVG, and also shows crude oil in the bottom panel:

In conclusion, we're into price territory where some degree of bear caution might be in order -- but do understand that there is no basing pattern evident yet in the wave structure, thus I cannot definitively call for a significant bounce.  This is more of a technical potential to be aware of at the moment.  As noted previously, the current decline does fall into the third wave position, and third wave declines are notorious for failing to bottom where indicators and speculation say they "should" -- so, until we have a bit more wave structure from the market, both bulls and bears should remain nimble.  Trade safe.

SPX, INDU, RUT: Updating the Big Picture

Not much to add since last update -- SPX reversed lower from the noted MB: 4 inflection zone, then proceeded to break the prior low, which validated the ST view that the bounce was simply a countertrend corrective wave.  That could be all she wrote for that correction, but there is always the potential for that fourth wave to become more complex (the b-waves of complex corrections are allowed to break prior lows or highs, while still functioning as part of an ongoing corrective sequence -- so a break of the low doesn't guarantee the end of a fourth wave).

Today, we'll also take a look at some of the bigger picture charts.  First, the updated SPX chart:

Next up is RUT's updated chart.  RUT appears to be tracking into its first downside target zone.

Finally, let's update INDU's chart from November.  Folks have been asking if the decline is part of Primary IV, or the start of a new bear.  My argument from the beginning has been:  It doesn't matter.  On December 21, I announced that it was my belief that we were on the cusp of a significant decline (See:  TRAN Warns of Potential 4000 Point Decline in the Dow Jones Industrials), and INDU has lost roughly 1000 points since then.

My thinking is this:  At the point which the market clearly states that its intention is to head markedly lower, I don't see much value in worrying about whether that large decline will be a fourth wave, a second wave, or the start of a new bear.  No matter what the case, once the market says its heading lower, possibly a lot lower, my trade bias will be to the short side.  From there, I trust the market will tell us when the decline is wrapping up, just as it told us when the rally was ending.

And we can only trade the present, after all.

In conclusion, there is still nothing in the charts that indicates a significant bottom is forming.  That could always change tomorrow (well, not "tomorrow," since tomorrow is Saturday.  It's just an expression!  Sheesh, don't be so literal.), of course, but as was just mentioned, we can only trade the present.  While I was able to accurately predict the August 24 crash, I'm not quite willing to "call for a crash" here, but do be aware that the potential is certainly present in the current pattern.  In any case, whether we get a true crash or not, the waves still appear to be pointed lower for now.  Trade safe.

SPX and Crude Oil: Crude Oil Validates Preferred Long-Term Count from 2011

During Monday's session, SPX captured its 1897-1911 target, and this has generated a bounce.  Presumably, this bounce is a fourth wave, though, as discussed previously, we're still unable to rule out the possibility of a large expanded flat (which would be short term bullish, but still intermediate bearish).  So, there's no real change there, and the preferred intermediate count in equities remains bearish.

On another note, VERY long-time readers know that I've stayed consistently bearish on oil for the last five years running.  Back in September of 2011, I published my preferred long-term wave count (updated sporadically since then), with a WIPEOUT target of 25 +/- for oil.  I further wrote that I was favoring that long-term count by a 90% margin, which is as about as bold and certain as you'll ever hear me get about anything (inside or outside the market, for that matter!).  Four and a half years ago, more than a few people thought I was nuts to say that oil was gearing up for a crash, not heading to the moon.  But my technical argument was that oil's 2008 crash was impulsive in structure -- and therefore it had to be the start of a larger correction, not the end of one. 

Here's what I wrote about oil in September 2011, in terms of technical analysis vs. fundamental analysis (keep in mind that, at the time I wrote this, a lot of folks were arguing that we'd already passed "peak oil"):

Crude is one of the few commodities that can be accurately tracked at cycle degree. As such, I believe we topped Supercycle I back in 2008. By the way, despite the current "peak oil" fearmongering, this argues that oil will likely be with us for a long time to come...

We are currently undergoing a correction in Supercycle II. It remains to be seen if this correction will be A-B-C for ALL OF wave II, or if this will be A-B-C of a larger A-B-C... but it doesn't really matter as far as the immediate future is concerned, so we'll drive our gas guzzlers across that bridge when we come to it.

The first thing we notice about this chart is the giant parabolic of wave V and the subsequent wave A crash of 2008. This is fairly typical of commodities as they often form extended fifth waves which retrace quickly. Add that to the fact that this is a crash not of primary degree, but of Supercycle proportions, and you get the picture. The second thing we notice is that wave B appears to be complete, with three farily-clean waves that count nicely in a 5-3-5 pattern. C-down looks like it's in the early phases.

I've been waiting four and a half years for this "against the herd" call to be validated by the market, so you'll have to forgive me for doing a little horn-tooting.  Vindication has finally come with the recent break of the 2009 print low:

Back to the present tense:  From an intermediate standpoint, oil appears to have some fourth and fifth waves to unravel here, thus, due to the size of the overall waves, some very large "backing and filling" price swings may be forthcoming in the not-too-distant future.  Be aware that a large fourth wave does not need to unravel itself in the time shown on the chart above (i.e. -- this chart is not a "time projection") -- fourth waves are known for their complexity, and it would not be unheard of for a complex fourth at this degree of trend to unfold over the course of years instead of months.

In conclusion, SPX captured its target zone, and appears to be unwinding a low-degree fourth wave -- however, the near-term "bull" count for a complex flat is still entirely possible.  Intermediate-term, the decline does not look complete yet.

My prediction for a crash wave in oil that would break the 2009 print low has finally come to pass -- and in this market, too, the chart suggests that the final bottom probably isn't in just yet.  However, be aware that the chart also suggests that a large bounce in oil, and perhaps a long and volatile sideways grind, may be drawing near.  Trade safe.

SPX and RUT: Bears Still Holding the Intermediate Cards

Last update featured an unabashedly bearish tone, and the market obliged by wiping out the opening pop, and by ending the day nearly 40 points lower than that open.  By all rights, the intermediate bear count looks like it's in the lead, but things may get a little hairy around current levels.  Bulls are looking for support here, so there may be some buyers lurking around the corner, and that could make for some backing and filling over the near term.

During the overnight session, ES hit the cash equivalent of my "MB: 3" target (SPX 1897-1911), which then generated a reversal higher.  The main thing that continues nagging at me is the potential for the (C) wave rally that I've discussed over the past few weeks.  The problem with B-wave declines is that they don't have true invalidation levels, so I still can't rule that out.  Nevertheless, for the moment, I'll operate under the assumption that the pattern is a straightforward bear wave until proven otherwise -- just continue to at least remain aware of the B and C wave possibility for the time being.

SPX's updated chart is below:

 
As promised Friday, here's an updated look at a big picture chart, via RUT:

In conclusion, we're still well-into bear territory here, and the patterns still seem to argue for an incomplete decline.  For the time being, we'll presume the straightforward bear count is unfolding, although there are still options for bulls to muster a big counter-trend rally before bears land the knockout punch.  In both cases, though, the market does appear that it's continuing to point lower for the intermediate term.  Trade safe.

SPX and NYA Updates: Bulls Running Out of Real Estate

There's not much to add since last update, except to note that bull hopes for a short-term reprieve in the form of an expanded flat C-wave appear to be dwindling.  We're into "last stand" territory now, and if bulls can't get something going directly, we're probably going to have to assume that the most bearish count is unfolding.

I noted the longer-term targets in the annotation above.  I'd intended to update some of the longer-term charts -- but I ended up spending so much time studying various charts that I simply ran out of time.  I'll try to update some of the big picture charts for Monday's update.

I did briefly update NYA's chart, which is hard to view as particularly bullish in appearance at the moment:

In conclusion, at this juncture, the main point to be aware of is that if bulls cannot find support soon, this could easily turn into a crash wave.  The position of this wave in the big picture is either C or 3, both of which are third waves, and third waves tend to be the longest and strongest waves within a pattern.

Ralph Nelson Elliott described third waves as "a wonder to behold," and for good reason.  Third waves are strongly-trending waves, so oscillating indicators such as RSI often push right through the extremes that would normally generate a turn, while failing to generate said turn (though they do sometimes generate a small countertrend move).  The "right" way to trade a third wave is to simply let your positions ride until the market says you shouldn't, and it will usually say so fairly clearly.

The question heading into a third is always "is this a true third wave?" and the market never rings a bell to let us know for sure.  In the current move, the pattern potential for a third wave is definitely present -- so if bulls can't get anything going directly, then shorts may just want to sit back and watch their profits accumulate for a while.  Anyone who shorted the predicted turn zone (north of 2076 SPX) is 100 points to the good right now, so the hard part is over, and it's only a matter of protecting profits from here.

Of course, NONE OF THAT IS TRADING ADVICE -- just something to think about.  Trade safe.

SPX Update: Market's Options Still Range from "Bearish" to "More Bearish"

Still no material change from the last few weeks of updates.  Monday's update concluded:

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.

That's where things still stand.  Accordingly, I've added the "most bearish" targets to the SPX chart; that way, if the market simply keeps dropping through potential support zones, folks will have some idea of where to look next:

In conclusion, the most significant takeaway is that bears still appear to be in control of the market for the foreseeable future.  On December 21, I sounded the alarm bell rather loudly and warned there was potential for a 4000-point decline in the Dow Jones Industrials.  I also stated rather plainly that henceforth "we're going to operate under the assumption that the intermediate edge has to be given to bears." 

I haven't seen anything in the last three weeks to negate that read.  To the contrary, the market has played along, and behaved bearishly, which only underscores my prediction. 

Folks have asked me what the intermediate bull count is here -- but there are good reasons I haven't been publishing an intermediate bull count.  I simply haven't seen a decent bull count that fits the wave structures.  And I still don't see much that would give bulls any hope (beyond short-term potentials, of course -- it's a pretty bearish pattern when my "bull" count has remained intermediate bearish for several weeks in a row.  I actually do my best to see both sides of the trade, so when all I'm seeing is "bearish" and "more bearish," it's rarely a good time to be a bull.). 

Based on the overall waves, the best-case intermediate bull count likely still entails a retest of the zone around the crash low -- and, to my way of thinking, a 150 (or so) point drop can't be called "intermediate bullish."  Not from where we sit right now, it can't.  A drop like that can only be characterized as "intermediate bearish" from our present vantage point.  Thus, for the time being, bears still appear to have control of the market, and bull hopes still amount to only a short-term reprieve.  Trade safe.