SPX, INDU, NYA: Bears Could End the Rally Here -- but Bulls Still Have an Out

In the last update, I wrote that I was finally willing to make the assumption that "the top is closer than the bottom," followed by a bunch of caveats.  Today we're going to look at a few signals that might suggest the trend has shifted to down, at least for the near-term, and possibly for the bigger picture.  But first, I've got some good news and some bad news for bulls.

The good news is that the economy added 215,000 jobs in March (subject to revision -- all government statistics are allowed the slight margin of error of plus or minus 100%).  This means the unemployment rate is only 5%!  Lots of new McDonald's(es) ("McDonaldi"? What's the plural?) are hiring fry cooks, and any skilled laborers who need cash registers that feature ACTUAL PICTURES OF THE ITEM BEING ORDERED because they can't read or perform basic math, due to the limitations of only having a total of 10 fingers.  The other option for people who are bad at math is to go to work for the Bureau of Labor Statistics -- but word is they're overstaffed, having just hired 215,000 new workers in March.  

Anyway, now the bad news is:  The unemployment rate is only 5%!  This type of news used to be good, way back in the days when fundamentals had some impact on liquidity (a good economy might lead to excess liquidity, which was good for the market), but these days, good news is discouraging to a market that's wholly dependent on the Federal Reserve to fund every rally.

With that out of the way, let's get to the charts.

Last week, I very-slightly favored the idea that the market needed one more small wave up to complete a five-wave rally, and thus complete wave C of a large ABC expanded flat off the 1810 print low.  Since then, we did get another minor new high, and the market reversed as if on cue.  The chart below shows the first level for bears to claim, and the first expected targets in that event:

 

NYA discusses the option that the pending decline could be part of an expanded flat:

 Finally, INDU discusses that it may be time to shift bias to near-term bearish:

In conclusion, there are finally enough waves in place for a complete rally -- so, presuming that the red dashed line on the above charts is overlapped, we have to consider the possibility that the entire rally is over.  Bulls have left themselves an out in the form of an expanded flat, which would make a lovely head-trip for everyone, since it would lead to a perceived breakdown, followed by a whipsaw and a new high (a perceived breakOUT) -- but that new high could very well mark the "true" end of (5), and thus reverse lower again.

In either case, since there are enough waves for a complete rally, bulls will want to be cautious heading forward, and may want to adopt the attitude that I recommended for bears until recently (i.e. -- "watch and wait, until there's an impulsive turn").  While the onus to "prove" a reversal has been on the bears since the rally bottomed at 1810, things may finally be shifting back into their favor -- IF they can sustain a breakdown at the red lines noted above.  Trade safe. 

SPX, INDU, NYA: Still Pointed Higher, but...

Last update's ever-so-slightly preferred count expected that the bottom was in for wave (4), and that a new high would be forthcoming in wave (5).  On Tuesday, Janet Yellen came out and said that the Fed is getting skittish about raising rates aggressively, and basically took the idea of an April rate hike off the table.  This leaves investors looking toward June, but of course, June is probably too close to the election for anyone to actually expect the Fed to raise rates then -- so, for all intents and purposes, Yellen just indicated there won't be any rate hikes until the end of 2016 at the absolute earliest.  And even then, THAT rate hike would only happen if everything looks super-incredibly-peachy, or if a Republican is elected, whichever comes first.

The market reacted as it usually does to any official proclamations that the Fed's Spiking of the Proverbial Punch Bowl will continue:  Prices rallied sharply, as shorts tripped all over each other trying to get out of the way of the inevitable "Rally Caused by Shorts Tripping All Over Each Other while Trying to Get Out of Their Own Way." (Unlike longs, shorts tend to be their own worst enemy.)

And thus it appears the ever-so-slightly preferred near-term count is in the process of coming to pass, which is good, because it means I pointed my readers in the right direction, and that's always the primary goal I try to accomplish with these updates.  It's also good because it means I don't have to adjust the charts much for today's update -- although I will also update one of the intermediate charts.

First is the Dow Jones Industrial Average 30-minute chart:

Next is NYA -- Monday's alternate "or 1" will be off the table north of 10,248.

Finally, an update to the intermediate SPX chart.  Since the market reached its downside target zones (way back in January), I've been warning that the position of this rally was extremely ambiguous in the bigger picture, and that it could run a lot farther than bears were expecting.  We're now getting into price territory that satisfies that potential.  One count I've been considering since the rally began was the potential that the low at 1810 SPX was a high degree B-wave, with the current rally as a high-degree C-wave (and this is why I haven't been anxious to short into this wave).  That count is shown in black below:

In conclusion, we're finally into price territory where I'm willing to make the assumption that "the top is closer than the bottom," but let's sum this up to keep ourselves grounded:

1.  SPX has not yet given any signs of a turn, which means higher prices (including a run to 2116+) are still very much on the table (a nice final "this is never gonna end!" fifth wave rally always makes great icing on the cake).

2.  I am front-running in my assumptions, so I cannot stress this enough:  We do not yet have an impulsive turn -- so 50 SPX points up from here is not out of the question.

3.  Again, readers need to understand that I'm warning ahead of the game (and, of course, could always be completely wrong), which means bears may be able to continue to afford a degree of patience because... 

4.  Until we see an impulsive turn, the trend at all degrees remains up. 

5.  The broader point I'm trying to make is that I would take the next impulsive decline seriously (when it arrives), because it has potential to mark a significant turn. 

Trade safe.

INDU and NYA: Near-term Focus

No material change from last update:  Equities are significantly overbought, thus I'd be surprised if the market moves markedly higher from here in the near future.  That said, another smallish wave up to mark a fifth and final rally leg wouldn't be surprising.

Since we've been looking at intermediate charts for a while, we're just going to look at near-term charts today.  On INDU's chart below, we can see that there are enough waves for a complete (C)-wave rally, but a final fifth wave would also fit the pattern just fine:

INDU's chart is a little scary for bears, because there are no overlaps at all, which leaves open much more bullish potentials than I'm favoring -- however, NYA helps assuage some of those fears, since it has overlapped its most recent relative highs:

In conclusion, I'll end where I began:  I'd be surprised if the market rallies significantly from here, but one more small leg higher would fit the pattern just fine.  (It's a very tough call as to whether the rally still needs a fifth wave or not.)  If bears can force a sustained breakdown of Thursday's low immediately, then we are either looking at a more complex fourth wave, or the start of a meaningful turn.  In either case, as outlined in the last update, it does appear that the rally is about due for a breather.  Trade safe.

SPX and INDU: Chop Zone Approaching?

One of the biggest errors we can make as traders is to assume that the market will always go up or down.  (What did he just say?)  What I mean is that "sideways" is the Most Frequently Overlooked Option by traders.

Nobody likes a sideways market, because they tend to be difficult to make money in, so we deal with that inconvenience by imagining there will never again be another sideways market.  Unfortunately, we can't make things go away by pretending they don't exist, unless they're already figments of our imagination and never existed in the first place!  The market, of course, isn't a figment of our imaginations -- technically, it's a figment of Ben Bernanke's imagination, which leaves the rest of us powerless to influence it.

Anyway, my point, if I remember correctly, is that after a strongly-trending market, we should be on alert for the market to go into sideways cycling mode.  And along those lines:  While bears tend to fear that market tops occur suddenly and without warning (this is an irrational fear that bears suffer despite all evidence to the contrary), tops are usually preceded by a cycling wave.  So, while the "exact" top sometimes occurs without warning, there is almost always a secondary high that follows after the initial decline.  And that secondary high is, more often than not, the "safer" entry, because it involves less guesswork and provides clearer stop levels.

The chart below illustrates what I'm talking about.  RSI has now reached levels that, in the past, have been associated with sideways markets and/or market tops.  Do note that RSI is not a "pinpoint" indicator, so these cycling/topping moves can begin from modestly higher prices than we're currently at -- but what we do not see on the chart (below) are any moves where RSI reached current levels and the market continued significantly higher without at least a pause/consolidation.

Also note that there is only one instance on the chart below where RSI surpassed 70 and there was an immediate top followed by a steep decline (once in 9 instances).  The reason for this type of action is best understood with the concept of inertia -- a strong rally typically has residual momentum, so it doesn't usually stop on a dime and reverse.  There are usually buyers waiting to buy the first decent dip, so it first slows its residual momentum by chopping sideways, then it reverses its direction and momentum (if it's a top, that is).  Not always -- but usually.
 

Further contributing to the idea that we may be nearing some sideways movement is the previous price action.  We can see on the SPX chart below that current price levels have repeatedly developed into chop zones for the past year and a half:

In conclusion, RSI suggests we may be nearing a sideways market and/or a topping point, and that it's unlikely the market will continue significantly higher (note this is relative, so even 50 points up from here would not be "significantly higher" relative to the size of the overall wave) without at least a consolidation occurring first.  It also bears mention that -- just going on the odds -- most times that RSI reaches 70, price still has a bit more rallying to do.  Thus keep in mind that my warnings may be a tad premature -- but I always look to see what might be coming before I try to cross The Street.  Trade safe.

SPX, NYA, WLSH, COMPQ: SPX Breakout Target Captured

On Friday, SPX captured its next breakout target zone (2050-60), and perfectly tagged a resistance line.  The blue line becomes first meaningful support:

NYA is still above its breakout zone.  If it back-tests the down-trend line, what happens there (if it acts as support or not) will be informative:

Next is simply an interesting chart of COMPQ -- interesting because I drew the blue trend channel almost a year and a half ago, and the market reacted to it strongly:

(Note:  Typo -- blue line tagged in February, not January.)

Next is a market I haven't published in a long time:  The Wilshire 5000.  This chart examines the bull count in detail, and contains a few random thoughts:

In conclusion, despite the neck-breaking pace of the current rally, I'm still modestly inclined to favor the bear case, but we have yet to see a larger impulsive decline -- and that's a prerequisite that we need to see before we even attempt to consider the possibility of a top.  All that could, of course, change at any time -- but the beauty of waiting for an impulsive decline is that it's hardly "without warning."  Trade safe. 

SPX, NYA, Crude Oil: Mixed Markets

Since last update, the Fed announced that it's going to keep rates steady, and the market has rallied.  Today's update will be rather short and sweet, and we're going to start with NYA, which has broken out over its intermediate downtrend line:

Oil has broken out from its bullish falling wedge pattern:

While SPX is still challenging layered resistance:

In conclusion, NYA and crude oil both have breakouts.  NYA's breakout is unproven yet, while SPX is still challenging resistance.  RUT and BKX have not yet broken above intermediate resistance, so the picture is mixed at this moment.  Trade safe.

SPX and BKX: Casual Fed Friday

Today is the long-anticipated Casual Fed Friday, and the Fed is expected to announce whether it will raise rates or not while dressed in shorts, sandals, and Hawaiian shirts.  Pundits can't agree on what the announcement will be, but many do agree that the vast majority of pundits disagree with each other. 

As to what the Fed will do, some fundamental analysts have been "looking deeper" for clues, even going so far as to analyze Janet's latest choice of breakfast foods.  It's come to light that, more and more, Janet has been having eggs for breakfast, and many analysts feel this is bullish, because eggs are fragile, and they remind Janet that the market itself is fragile.  Others have suggested that Janet is cracking eggs lately as a form of "mental preparation" for bursting the market's bubble. 

Never mind, I guess there's no consensus there, either!  We may have to look for clues in even more inane places, such as in the verbiage from the last Fed minutes.  But that would require me to actually read the Fed minutes, and I have a tendency to develop migraines these days, so I'll leave that to the pundits. 

Frankly, I miss Bernanke.  That guy not only had a beard that wouldn't quit, but he was incredibly easy to predict.  I think I was batting .900+ on my predictions of what the Fed would announce under Bernanke.  But I don't even bother trying to predict Janet, probably because she lacks a viable beard.

Anyway, the wildcard for the market right now is whether the ECB and BoJ's negative interest rate policy will send enough cash into U.S. markets to reinvigorate the bull, despite Janet and her egg-cracking.  I can't answer that question, but it is a consideration to... consider.  ("Allow myself to introduce myself.")

As discussed last update, the market has managed to work its way into an inflection point -- and, yet again, this seemingly-important inflection hits just in time for Fed Friday.  What a coincidence!  Amazing how often the "random market" manages to do that.

There's really very little to add to the last update, except to again reiterate that multiple markets are now up against more significant resistance.  Below, I've updated a long-term BKX chart that has served us well over the past three years.  This chart underscores the significance of the current inflection point:

SPX did form an implusive decline from 2024, although the top is messy enough that I can't be certain it's not the C-wave of an expanded flat.  If it's the c-wave of a flat, then bulls need to hold 2005 -- if that fails, then the impulsive decline was wave A or 1 down.  And in the event the impulsive decline from 2024 is wave A/1 down, then I'd watch 1995 +/- first, and 1982-86 second as potential targets.  If those zones fail to offer support, we could drop toward 1969-73.

Below is a simple near-term support and resistance chart for SPX:

The market hasn't done much since last update, with multiple markets still testing meaningful resistance -- so I'll simply reiterate the conclusion of last update: 

On the bull side of the coin, to this point, resistance levels have proved to be only short-term challenges.  Nevertheless, the current levels, and the zone just north of here, are potentially a more significant degree of resistance than the rally has faced so far, and thus should be a more significant test of the rally's true strength, or lack thereof.

Trade safe.