SPX and INDU Updates: Odds for a Meaninful Low Continue to Diminish

When I published Friday's update, I remained noncommittal on the short-term waves -- but shortly after the open, the market revealed its intentions rather plainly, and I posted the following in our forums at 9:55 EST:

Much as I hesitate to commit to a near-term proposition here, as long as bears hold 1927, today looks biased down. I think if we rally back to 1920ish, it's a decent sell op for a trip back to at least 1897, possibly a lot lower. If we don't rally, then we might already be inside a small nested third wave decline. NOT TRADING ADVICE

I followed up after the close with:

Funny how you can study charts all night and find nothing overly revealing, thus ending up with: 'Well, heck, this could still go either way,' -- but then you see something in the first few minutes of trade that tells you which way it's heading.   I later noted that the pattern argued for further downside, and today, futures are indicating a gap-down open in the SPX.

As noted in previous updates, the (pending) breakdown at 1872 argues that we're probably not forming a significant bottom, but the question at the moment will be whether ALL OF wave (4) completed at 1947, or whether the market will form a more complex corrective fourth wave, as shown by the black "or B?" and "or C of (4)" on INDU's chart below.  A complex fourth would give the decline a bit more symmetry, but it's certainly not required:

 The 5-minute SPX chart (below) notes some potential targets:

In conclusion, the odds for a meaningful low continue to diminish, and the main question seems to be whether a simple fourth wave is already entirely complete, or whether it will take a more complex form.  A complex fourth could find support near either side of the 1812 low, so keep an eye on that zone if we get there.  To the upside, bears would like to see the zone around 1880 act as resistance to any rally attempts.  Trade safe.

SPX and NYA: Big Picture Charts

Since last update, the market has barely moved on a closing basis, so there's no real change in my analysis since that update.  My first instinct was that the decline was the C-wave of a bullish expanded flat, and that possibility remains alive and well.  The immediately bearish option is still that ALL OF wave (4) completed at 1947, and there's nothing to rule that out yet, either.  If we were to try and simplify things, we'd say that bulls probably don't want to see 1872 fail in the near future -- but we have to stay aware that there are many complex corrective possibilities in the current wave.  So, for example, 1872 could fail as part of the c-wave of another b-wave, then rally back up to 1947, then decline back down, THEN bottom and rally again.  Or vice-versa.

Look, I realize I've been pretty noncommittal about the short term waves ever since January 21 (immediately after the downside targets were captured) and I don't like writing that type of analysis any more than you like reading it -- but, really, given how the market has behaved since January 21, has that approach not been entirely correct?  I think part of my duty as an analyst and a trader is to try to recognize (ideally in advance) when a pattern may not be as clear-cut as it seems, because chop zones can be account killers if you head into them expecting a trending move.

As it sits now, I can still see roughly 829,971 near-term possibilities in the wave structure.  Due to the myriad options, and the fact that nothing has really happened (on a closing basis) since last update, I'm not going to update the short-term waves today, except verbally, as follows:

Again, the simplistic view is that bulls want to hold 1872, while bears want to hold 1947 -- just remain aware that, due to the complex corrective potentials here, a breakout or breakdown could indicate the larger direction over the next 7-10 days or so, but for the very near-term, could certainly whipsaw directly and run to the other key level extreme before heading back to the original key level (the level it broke before the whipsaw).  Can a breakdown or breakout run immediately and strongly in the direction of the break?  Absolutely it could.  I'm simply warning that such an outcome isn't as clear-cut as it may seem.  In other words, those key levels could only be used as "trade triggers" if that approach is coupled with extreme caution.

So, instead of causing everyone's heads to explode by yammering on about all the noise-zone options, let's step back a bit and take a look at a couple big picture charts.  Let's start with NYA, which is currently pinned between support and resistance:

 Next up is a long-term chart of SPX:

In conclusion, there's no material change from last update for the near-term, or the big picture.  The market continues to look like it's trying to build a base, but, thus far, has been unable to break through any meaningful overhead resistance zones.  Trade safe.

SPX, OEX, INDU Update: Near-term Inflection Point

The market continues to whip and saw in its ongoing base-building attempt, and yesterday saw the test of some important support lines.  If bulls can hold the area around yesterday's low, then they can maintain valid hopes for a trip markedly higher from this zone.  If yesterday's low fails significantly, then there will still be options for a move above this week's high, but odds would then favor it as part of a ongoing complex corrective wave, ultimately destined to flame out.

My first instinct after Tuesday's high was that 1947 marked the top of a B-wave, with a C-wave decline on deck -- and shortly after Tuesday's close, I published a chart in our forum showing that I thought the market would head directly lower by roughly 30 points.  It exceeded that expectation.  I labeled the forum chart as "speculative," and despite the market following the path I outlined on Tuesday, I hesitate to make a strong call here, because this market is ugly... however, my first instinct is right more often than not, and if the 1947 high was indeed a B-wave, then SPX would be expected to exceed that level after the C-wave decline completes (see INDU chart for two versions of the C-wave).

But there are no guarantees this is a C-wave decline; it could be the start of MB: (5).  The trickiest part of deciphering this wave is the fact that there are technically enough waves for a complete ABC rally fourth wave -- and, although the C-wave would be a little shorter than usual, we have seen some C-wave truncations in the course of 2016, so it's not out of the question.  A complete ABC rally would mean that the corrective rally is entirely over.

Today and tomorrow could thus be important, and will probably be revealing.  I've outlined why on the S&P 100 (OEX) chart below:

SPX's chart is a bit more detailed, but reveals a nearly-identical pattern:

If we do keep dropping, then it's still possible for yesterday's drop to be part of a C-wave (just a larger C-wave than originally hypothesized) and we could be tracking the black "or A/B/C" count.  Of course, in the event of a continued decline, we'd also have to consider the possibility that ALL OF (4) was complete, as discussed earlier:

In conclusion, the market has reached a near-term inflection point, so we will likely be able to begin eliminating some of the options in the next session or two.  Trade safe.

SPX and INDU: Bulls Keep Hope Alive -- Will It Stick?

Last update concluded that:

...today may be a do-or-die session for bulls' near-term hopes.  The market is trying to build a base here, but still needs a sustained breakout for the base building attempt to end up successful.

Apparently, bulls realized that Friday was their last chance, and they showed up in droves on the heels of the Bank of Japan's announcement of negative interest rates.  The central banks are continuing to take the approach of "no program is too radical, and there's no such thing as unethical."  I remain in the "old school" camp that believes "there ain't no such thing as a free lunch" (RIP Robert Heinlein) -- i.e.: you can't get something for nothing.

Or, as Fred Brooks so succinctly put it:  "You can only get something for nothing if you have previously gotten nothing for something."  Thus, I continue to believe that this Grand Economic Experiment, which the world's central banks are inflicting upon all of us and our children, will eventually end very badly.  But in the meantime... well, in the immortal words of The Artist Formerly Known as "The Artist Formerly Known as Prince" but Now Known as Prince Again:  "Tonight we're gonna party like it's 1929."

As far as the charts go, there are a lot of unanswered questions at the current juncture.  On Friday, bulls essentially rallied the minimum they needed to in order to keep hope alive for a half-decent bottom.  Early this week, the market should show us if there's any reality to that, so we'll be watching support zones and wave structures very carefully.  Bears do need to remain aware that if support holds, there are options for a solid rally from this position; while bulls need to remain aware that if support fails, it just might end up qualifying as a whipsaw (depending on how it shakes out) of their inverse head and shoulders pattern:

I've tried to simplify the bigger-picture INDU chart as much as possible, at the risk of the market taking a significant deviation from the paths shown.  I can see half a dozen clean and fully viable potential wave patterns on this chart, so I'll have to update those as and if it becomes appropriate to do so.  SPX has similar options, so there's really no need to chart them twice, with the market as ambiguous as it is currently:

In conclusion, if you're a bear, you could, of course sell the resistance inflection points; if you're a bull, you could, of course, buy the support inflection points... or, if you're a more cautious trader, there's always the option to await a bit more clarity.  Traders who took profits when the downside target zones were captured (See:  SPX and RUT Capture Downside Targets) -- and thus avoided the recent 100 points of drawdown for shorts -- are probably glad they did.  As written January 21:

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.  

Trade safe.

SPX Weekly: Is Today a Do or Die Session for Bulls?

In the update of January 21, I mentioned that downside targets had been captured, and so, accordingly, I was in watch and wait mode until the market declared its next intention.  Since that update, the market has gone essentially nowhere, and we've been stuck in a chop zone for the past week.

Accordingly, there's still no material change, but I do have an interesting weekly chart that suggests that today may be a "now or never" day for bulls:

Thursday's session was a bit choppy, but I've already got the SPX chart all figured out and labeled (below)! 

It was pretty simple, really.  As we can see on the SPX 1-minute chart below, yesterday's price action was actually caused by an earthquake off the coast of northern Sumatra:

The five-minute chart helps remove some of the noise from the 1-minute chart shown above, but still reveals that we're stuck in a chop zone.  No real change here, either, except to note that whichever way the chop zone breaks, there's some suggestion that such a break would signal a small third wave in progress (meaning the move could run in the direction of the break) -- thus bulls should probably be cautious if there's a sustained breakdown at 1872 first, and the lower blue line second, while bears should be cautious if we sustain a breakout over 1920ish.

In conclusion, today may be a do-or-die session for bulls' near-term hopes.  The market is trying to build a base here, but still needs a sustained breakout for the base building attempt to end up successful.  Trade safe.

SPX is Testing a 30-Year Trend Line

Today is, of course, the infamous Fed Friday, so all eyes will be turned toward the Fed announcement later today (or should that be "all ears"?).  It's expected that Fed Chair Janet Reno will finally reveal exactly WHAT happened in Waco, Texas nearly 23 years ago, when she was Attorney General.

Wait!  I'm thinking of the wrong Janet.  Hang on, let me consult my notes here...  Okay, my notes say I'm supposed to get a gallon of milk and something called "Orange Pineapple Tang" on my next trip to the grocery store, so I'm just going to have to wing it on this FOMC thing.

Without more than a cursory glance at what the analysts are saying, I'm going to safely assume that bulls are hoping the Fed will say something dovish, such as: "We only use Dove Brand Moisturizer, here at the Fed," while bears are hoping the Fed will remain hawkish.  The overwhelming consensus among analysts is undoubtedly that the Fed will, indeed, say something -- but there is probably a lot of disagreement about what exactly that will be.

The charts seem to reflect a slightly undecided market, and there's still no real change since SPX, RUT, and NYA captured their respective downside targets, but I have drawn up a few new charts of SPX.

We'll start with a five-minute chart, then move onto a weekly chart.  Keep in mind that trades today are best approached with the understanding that FOMC days often mix headfakes and whipsaws into the action:

The long-term SPX chart reveals that the market is currently testing an interesting trend line, which has acted as both support and resistance over the past 30 years:

Here's a zoomed-in look at the chart above:

Nothing to add on the hourly chart, but the charts above should have provided some added perspective:

 
And finally, RUT is back-testing its broken red channel:

In conclusion, the market is "secretly" testing a very long-term trend line, and sometimes that in itself causes some volatility -- so, combined with the pending Fed statement, the second half of this week might get interesting.  For the moment, I remain content to let the market lead until the pattern clarifies again, but I'm also inclined not to get too bullish until the market reclaims, and sustains trade north of, the aforementioned long-term trend line.  Trade safe.

NYA, RUT, SPX: No Material Change

Last update concluded:

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.

As of right now, anyway, there's no real change, in the sense that the market hasn't done anything to tip its hand and provide additional clarity.

Let's take a look at a few charts, starting with NYA, which hit its intended target (although the lower trend line was a bit higher than the 8800ish level I'd estimated it would be crossing when tagged):

No change to RUT below:

And no material change to SPX:

In conclusion, we're still inside territory where the wave is less predictable than it's been over the recent past.  In ambiguous price territory, I'm content to simply let the market lead for a bit, while awaiting for the next "eureka" moment.  Trade safe.