Some nights I don’t know how I get the update finished, and this is one of those nights (I know for most people, the sun is up already — but for me, since I live in Hawai’i, the market opens at 4:30 a.m.). I’ve been studying chart after chart, because there’s something bothering me about this market, but I can’t quite put my finger on it. Sometimes when I look at enough charts, I can figure out what my gut is trying to tell me — and sometimes it’s nothing. Maybe my feeling of nagging discomfort is just normal bull market “wall of worry” stuff. I ran out of time tonight, and couldn’t quite pin it down, but may have come close with a ratio I watch.
Since this is a currency-driven rally in the form of the QE printing press, I often try to view things through a dollar-lens, so to speak. The chart below is a ratio of the S&P 500 (SPX) to US Dollar. This is a bit inconclusive at present, but the chart explains the reason for caution: what’s bothering me right now is that every rally prior to this (in the QE era, anyway) has ended right where we’d normally expect a fourth wave decline and a fifth wave rally. Maybe this rally will break that pattern — but given the precedent, it seems unwise to simply assume it will.
The Philadelphia Bank Index (BKX) is also warning that a larger turn may be in the works.
The NYSE Composite (NYA) shows that bulls probably need to hold the black dashed trend line, or risk bigger problems:
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The preferred count for the SPX still has the active downside target of 1470-1473. I went over the one-minute SPX chart in detail tonight, and it is possible that the market has completed an ABC fourth wave correction in its entirety (hence the alt: 4), but I presently view that as the underdog. And, as I just noted, I’m having trouble simply assuming we’ll even get a fifth wave up. The annotation from yesterday still sums up my approach right now.
Finally, a short-term chart of the Dow Jones Industrial Average (INDU) which staged a pretty solid snap-back yesterday. The chart is simply for aid in identifying potential support and resistance areas throughout today’s trading session.
In conclusion, if it weren’t for the market’s behavior over the past few years, I would normally be reasonably confident in the idea of a fourth wave decline now underway, and a fifth wave rally still to come. But given the three-wave nature of most rallies since 2009, I am continuing in my cautious stance until I see more signs of an “all clear” from the market. Trade safe.