On Friday, the market again performed in accordance with the expectations of the preferred count, with the Dow and SPX hitting their targets and reversing within just a few points. This does remain a difficult market to anticipate, however. This week could be critical to unveiling the market’s intentions.
While the preferred count has hit every single target I’ve published for over a week, I’ve been able to gauge those targets by the very short-term structures — so the fact that they’ve hit doesn’t tell me much about the larger count. At present, the prices remain at an important, larger, inflection point. I am expecting lower prices early in the week (again, based on short time frames), but what happens from there should finally tell us which count is unfolding. The preferred count needs to see some strong downward movement in the near future, or it will become difficult to maintain.
There are several ways to label the current decline, and if it is indeed the impulse wave the preferred count thinks it is, then it needs to show some acceleration lower soon. There are only so many first and second waves that seem “reasonable” — after a time, one has to start considering that the whole structure may just be a corrective wave instead.
I do feel that the market is in an area where shorts need to remain aware of a potential rally; bearish sentiment is also reaching levels that have generated rallies in the recent past. The main clue we have which could serve as warning of a larger rally unfolding would be the trend line/channel that has formed in several markets. A break of the upper trendline would be a signal to become very cautious of a bigger rally beginning.
The first chart I’d like to share is one of the NYSE Composite Index (NYA). This is a very broad index, encompassing all the common stock on the New York Stock Exchange — and it’s one I like to watch to get a more general “pulse” of the market. The NYA shows a very clearly-defined triangle. A breakout/breakdown from the triangle would imply a move of 20% or more in the direction of the break.
The next chart is the SPX, and it’s labeled with the preferred count in blue/red, and the alternate in black. The red/blue labels are the most bearish labeling of the decline possible, and may need to be adjusted, depending on what happens this week. The blue “Alt: B” target zone is the safer and more conservative target.
Do note that the wave labeled with red (1) is potentially a complete 5-wave form, and thus bears the black “Alt: c” label. At this particular point, short term downside targets are a bit sketchy. It’s hard to count the rally on Thursday and Friday as part of an impulse — it certainly appears corrective, and as such, suggests lower prices. But the larger structure is so vague, it’s very tricky to understand exactly what’s unfolding at the moment — there are clues here and there, but little in the way of a concrete formation.
The final chart is the Dow, and it’s labeled a bit differently than the SPX, because the price structure there is actually markedly different. It also calls attention to another potentially important support/resistance zone, in the form of the blue trendline. This index shows a double-top, formed early this month, much more clearly than the SPX does. The blue support/resistance line could be the key battleground which determines whether the bulls or bears emerge victorious for the next week or longer.
The NDX chart remains the same as last week, and has continued to perform in accordance with the expectations of the preferred count.
In conclusion, I remain bearish over the long term; my stance in that regard has been unchanged since May. What we’re really trying to determine now is exactly when the next big leg down will get kicked off in earnest. It appears the market is very close to doing so, but still unclear as to whether it’s already started. Range-bound markets are exceptionally difficult to predict, even though my short-term projections have been hit quite consistently. Hopefully, this week will provide some clear answers on the larger picture — a decisive break lower will tell us that the decline is likely to run for a while. Conversely, a break of the upper trendline will warn us that the market probably wants to stretch the correction a bit higher first. Trade safe.