SPX, NYA, INDU: Title Good 'til Cancelled (Unlike Stop Orders)

Last update noted that SPX finally formed its first impulsive decline since the rally began, and that "this is as good a signal as bears have had since the bottom at 1810."  Unfortunately, that impulsive decline was simply wave A of an ABC correction, and wave C bottomed shortly after the open.  Still in all, bears who waited for that impulsive decline were able to avoid shorting into the first 100+ points of rally, so things could certainly have been worse.  Not every signal works perfectly, especially in a market as vague as this one, but as long as one manages risk and maintains discipline, then one can hopefully avoid catastrophic damage to one's account at the times when the market runs the other way.

Since then, SPX was able to break 1947, which at least eliminates some options from consideration.  This is a tricky position now, because the larger count isn't 100% clear-cut -- but this break of 1947 certainly isn't entirely unexpected.  Let's look at a few charts, starting with SPX:

Zooming out a bit on SPX, let's finally update the bigger picture chart (you know the chart I mean -- it's the one where I basically said "my work here is done" back on January 21, and haven't updated since):

NYA is still below resistance, and looks to be entering the zone we anticipated:

Finally, INDU:

In conclusion, IF this is a fourth wave (and that's always an "if," since we know to "never bank on fifth waves"), then this pattern fits the expectations of a flat correction quite well.  The challenge, of course, is that classic technical analysis would view this as a bullish double-bottom pattern, and project it to run approximately the width of the initial pattern (about 100+ SPX points higher from here).  Until we see some key price overlaps from this rally, I'm more inclined to think it's simply a complex fourth wave, and will be interested to see how SPX reacts to 1963-70.  Of course, there are no guarantees in an ambiguous market, so the more conservative path would be to await an impulsive decline, which provides both more information, and a clear level to act against.  Trade safe.

SPX, INDU, and Stockcharts Errors: Bears Get Their First Real Chance Since 1810

Since last update, SPX and INDU have both reversed from upside inflection points in apparently-impulsive declines.  This is as good a signal as bears have had since the bottom at 1810.  Thus, the level for bulls to beat remains 1947.20 SPX -- but unless that happens, it appears that bears just took the ball back.

Unfortunately, I've had a lot of trouble with Stockcharts.com tonight -- the site has crashed several times, and I've lost some of my annotated charts, because they're not uploading properly.  Let's take a quick look at Stockchart's version of the SPX chart:

Oh yeah, that one crashed after I spent time annotating it, and it never uploaded at all...  Hmm, okay, let's take a quick look through one of my Stockcharts chart books instead:


Ugh, that's not much help either.  Luckily, after considerable effort, I was able to get one (count it: one) chart loaded and saved for today's update:

And after going back and trying again just now, I was able to quickly annotate an additional chart, which had to be kept simple by virtue of time constraints:

In conclusion, we have our first impulsive turn since the rally began at 1810.  This in itself doesn't guarantee that the rally is entirely complete (the impulsive decline could be wave A of an ABC correction), but it's the best signal bears have had since 1810.  INDU has developed into the structure discussed on February 15 (a 3-3-5 flat), and turned right where wave C of (4) was charted (originally shown all the way back on February 8).  My main lingering concern is that it's still technically possible that this decline is only a correction to a still-larger ongoing C-wave rally -- but bulls are going to have to prove that with a breakout over 1947.  As noted, this is "as good as it gets" for bears at this stage.  Trade safe.

SPX and HYG:TLT: Still an Uninspiring Market

Something I've tracked regularly for the past few years is the ratio of HYG:TLT.  TLT is the iShares 20+ Year Treasury Bond ETF, while HYG is the iShares iBoxx High Yield Corporate Bond ETF (HY obviously stands for "High Yield," but there's no indication anywhere as to what the "G" stands for -- so my personal theory is that HYG stands for "High Yield Garbage").  I track this ratio because, theoretically, it should help give warning when smart money is moving from risk into perceived safety, and vice-versa.

In practice, this ratio flashed early warnings throughout 2014 -- but it wasn't until early-2015 that I felt (and wrote) that it was "finally... time for equities to pay the piper, and reconcile this divergence with a downward correction."  Given what's happened since, I believe we can safely say the theory worked quite well.

With that little bit of background, let's update where HYG:TLT stands today.  We can see that, as of this moment anyway, bulls appear to have their work cut out for them.  There's simply nothing intermediate bullish about this pattern -- although, for the near-term, a back-test of the broken black support line wouldn't be terribly surprising:

From an intermediate standpoint, nothing has changed, and I still expect we've got lower prices pending.  From a near-term standpoint, nothing has really changed either, and the near-term remains ambiguous.

Despite that, I've taken a look at the charts with fresh eyes this weekend, and decided to step out onto a limb that probably can't support my weight.  Just be aware that the target shown below is not my usual type of "higher confidence" target, and more of a zone to watch carefully if we reach it:

In conclusion, the intermediate-term remains bearish in appearance, while the near-term remains ambiguous.  Regular readers will recall that I've felt the near-term appeared ambiguous for the past four weeks (starting on January 21, immediately after SPX captured its downside targets) -- and, in fact, the market has remained range-bound ever since.  The market generally oscillates between trending waves and cycling waves, and sometimes about the best you can do is simply identify when it shifts from one phase to the other.

From a near-term perspective, we're still below the wave (2) invalidation level, so the market has kept open the most immediately-bearish options for the time being.  Essentially, nothing has changed since Thursday:  If we see an impulsive turn from here, then we'll have our first clue; if we don't, then the pattern calls for continued patience for bears. 

Frankly, I'm growing a bit tired of charting this wave of the past four weeks, but it is what it is.  As I see it, the pattern is most-likely a bull trap -- just be aware that sometimes in order to be a good bull trap (and bear killer), a wave needs to run higher and longer than seems reasonable.  I genuinely don't know if that's what will happen here or not, which is why I'm still awaiting a clear impulsive decline.  Trade safe.

SPX Update: Market Reaches Inflection Point

Last update, I noted a few important points regarding the current rally, and I'd like to briefly revisit some of those.  First:

Regarding the chart above, I'd like to note that this pattern allows for a lot of leeway at either inflection point: Blue 2 can't be fully eliminated until 1947 is claimed, and black C only needs to be higher than 1947, but could also run even higher than shown.  This is the type of pattern where we'll have to play it by ear in real time, and watch for a turn that's followed by an impulsive decline -- that would help with early confirmation that it's "the" turn.

and:
  
...front-running should be done only with extreme caution.

I'm highlighting those points because I also talked about this as a "sucker rally," and mentioned that it appeared a significant decline could be pending upon its completion.  The reason I also wrote the italicized portion (above) into that update is because "sucker rally" does NOT mean we should ignore the present.  At present, we have a strong rally of an ambiguous nature with unclear targets.  At times like this, I believe it's important to have patience, and not get too far ahead of the price action.  In fact, even though these updates are almost entirely forward-looking, I don't believe we ever need to get too far ahead of the present.  Why?

To answer that, let's start with the chart below.  Even in a market as ambiguous as this has been, you'll recall that the market told us that a rally was at least a 50/50 probability after a retest of the low (and it told us this back on February 8, before we had even retested the low!  See chart below.).

After we saw a rally begin from the black B inflection point, we had our first solid clue that it was time for shorts to be cautious -- and immediately thereafter, we knew we were up against a C-wave rally (recall that C-waves are third waves, and therefore almost always strong trending waves) -- in this case, a C-wave of indeterminate wave degree.

The point I'm getting at is that even in a market as vague as this one has been all month, we still had solid signals from the market that told us, in order:

1.  That we should expect at least a retest of the low.
2.  That said retest of the low had at least a 50% chance of marking a bottom.
3.  That any pending rally from said bottom would be strong.
4.  That a C-wave rally (of indeterminate wave degree) had begun off the retest.
5.  And not to short randomly into that rally -- i.e.: not to front-run, but to await an impulsive turn.

In other words, I don't believe we need to get too far ahead of things because the market usually guides us along the way.

With that thought in mind, let's look at the SPX chart in order to better visualize where we appear to be now, and to visualize some of the potential dividing lines heading forward:

As we can see on the chart above, the rally still has many options, which is why more cautious traders will watch for an impulsive decline -- although nimble traders will likely note that we've now pushed pretty far into the blue (2) inflection point and are pretty close to its invalidation level (and if I have to explain the significance of that, then you're not a nimble trader and you should just ignore that statement entirely).

In any case, until we see an impulsive decline, I simply can't make a clear call as to where this rally will end.

Briefly, here's one more chart of interest.  I've shown this trend line before, and it's worth noting that "here we are again":

In conclusion, we're well into the blue (2) inflection point, so from a structural standpoint, this is one zone that could end the rally, and the R/R is much better than it was in the last update -- however, that is NOT TRADING ADVICE, because this pattern is ambiguous, so I simply don't know if the market will view this price zone as significant or not.  If we see an impulsive turn from here, then we'll have our first clue; if we don't, then the pattern calls for continued patience for bears.  Trade safe. 

SPX, INDU, NYA: Smells Like a Sucker Rally

At any given moment, the market has nearly-infinite options as to how it will proceed, and if it was truly random, then it could bottom and reverse (or top and reverse) at just about any random price point.  Yet it usually gravitates towards certain specific price points before reversing, and these points can often be anticipated.  In this case, the inflection point appeared to be the zone around the low -- and it's worth a brief mention that SPX did end up capturing all three of my potential targets from February 8 (Target 3 was 1800-1812).

On February 8, I mentioned that the lower targets appeared very plausible, but also mentioned that if Target 3 was captured, it might hint more strongly that the decline was a third wave instead of a C-wave (which is a bit of a paradox because C-waves ARE third waves).  Nevertheless, the wave structure did not quite develop as one would have expected for a classic third wave, which now leaves two primary options open:

1.  The decline was part of a larger complex expanded flat, which is a corrective pattern at higher wave degree.
2.  The decline isn't complete at any degree, and the market hasn't even begun the third wave yet.

On Friday, I outlined those options on the SPX 30-minute chart, and noted the approximate dividing line with a red "?".  Today, I've added a bit more detail to that same chart, and thus replaced the question mark with a "2?" label:

Regarding the chart above, I'd like to note that this pattern allows for a lot of leeway at either inflection point: Blue 2 can't be fully eliminated until 1947 is claimed, and black C only needs to be higher than 1947, but could also run even higher than shown.  This is the type of pattern where we'll have to play it by ear in real time, and watch for a turn that's followed by an impulsive decline -- that would help with early confirmation that it's "the" turn.

Let's take a quick look at NYA, then we'll wrap things up with INDU, because the INDU chart suggests that bulls aren't out of the woods yet on an intermediate basis.

On NYA, I've shown that a higher degree C-wave could amount to nothing more than another test of the black resistance line and the dashed red horizontal resistance zone:

Finally, the wave structure in the Dow(n) Jones Industrial Average isn't particularly encouraging for bulls.  These are the little ways that the market sometimes tips its hand, and the pattern we have in INDU appears to be 3-waves up followed by 3-waves down.  This suggests that it's either a larger 3-3-5 corrective flat (the final wave would be an impulsive C-wave), or part of an incomplete bearish nest:

In conclusion, the market has a few different options for the near-term, which means front-running should be done only with extreme caution -- but the larger pattern still suggests lower prices, and even hints that there may be a significant decline pending after this rally completes.

Do note that in the event bulls can claim 1947, there are a few faint early hints in the wave structure that the market could form an even more complex correction and stretch sideways for several weeks before the next leg lower gets rolling.  This note only applies if 1947 is claimed, though, because until that happens, I can't be certain that what I'm seeing isn't simply part of an extremely bearish nest of first and second waves.  Trade safe.

SPX, BKX, INDU Updates

Last update noted that 1880 was key resistance, but the market rallied almost 2 points past that level before collapsing by 70 points.  Tonight's charting took me longer than I expected, so today's update will let the charts do all the talking.

First is a long-term BKX chart, which I haven't adjusted at all since it was first published, back in September:

Next is INDU.  This market ran straight to the inflection point shown on February 8, so this chart has also not needed an update:

Finally, a couple near-term rally options, with the caveat that there's no guarantee we'll rally at all.  Basically, this is to note sell op inflection points:

In conclusion, SPX broke the 1812 low, validating the view that it was not a meaningful bottom.  The market seems to remain pointed lower for the intermediate term.  Trade safe.

SPX and RUT: Yellen Speaks

Today, of course, marks the premier of the long-awaited two-part animated series: Ask Janet Yellen!  This show is produced under the pretense of creating some sense of accountability from the Federal Reserve to the American People.  While we, the American People, don't get to ask Chairperson Yellen any questions directly, the officials we've unwillingly elected to Congress will ask Janet Yellen questions "on our behalf."  Then our elected officials will alternately nod or frown (sometimes both), in order to pretend they understood the answer they received.

If you thought the Super Bowl was fun, you're most definitely going to want to set aside most of Wednesday and Thursday to watch this exciting drama unfold.  Just read what the critics are saying about Ask Janet Yellen!

"Some of the best entertainment available," says Larry King, "is on other channels."

"Riveting!" exclaims the New York Times "such as one finds on the Home Improvement Channel, is, frankly, more exciting than watching Yellen's Congressional testimony."

Moving on to the charts, the short-term patterns remain up for grabs, but the market does seem to be indicating that the odds for a meaningful low at 1812 SPX have indeed diminished.  In fact, RUT has already broken its equivalent low.  The current decline in RUT is three-waves, so it's either the b-wave of an expanded flat (black), or an incomplete impulsive decline (blue -- but could stretch lower than shown):

A simple view of SPX reveals broken long-term support, and a rejected back-test of that support (i.e.-- support became resistance).  If the expanded flat shown on RUT (above) played out, then we could get a second test of the broken blue channel, probably a bit higher than the first test -- but that second test would also ultimately be expected to fail and head lower:

The near-term options for SPX are similar to RUT, though are not shown with as much detail.  If SPX sustains a breakdown at 1812, then 1770 +/- remains the first target, while 1700 +/- would be the second target (this second target is preliminary -- to be adjusted based on the near-term wave pattern after any breakdown).

In conclusion, we can probably anticipate some wild gyration from the market in tune with Yellen's testimony.  From a technical perspective, if the recent decline is a B-wave, then that would lead to a near-term rally back up, north of 1947 SPX -- but that would ultimately be expected to be a sucker rally and reverse back to new lows.  The first hurdle to that path remains the 1880-90 zone.  On the bear side, an immediate and sustained breakdown at 1812 could lead the market significantly lower.  Trade safe.