As I’ve examined the charts tonight, I’ve been looking for reasons why the big nasty third wave decline isn’t starting. I’m not finding too many. Most of the individual stock charts I’ve looked at are in bad shape. The one confusing thing is the wave structure on the major indices, going back to the December top, is a mess. It looks corrective, which would imply a move back above the December top; but so far it isn’t behaving correctively. I’m favoring the idea that the bearish counts shown below are unfolding, and that the top is in — but the market is again reaching that “stretched rubber-band” stage, where it could snap-back violently, or it could break in dramatic fashion.
As a result, it’s still a tough call on the short-to-mid term picture as to whether there’ll be one last lunge above the October 27 highs or not. As stated above, I continue to favor the more bearish resolution — but I do want to take a minute and warn my readers that, now more than ever, please trade safely. I say that because I’ve been nailing targets left and right, and that breeds a certain complacency about my targets and projections. I’m not a crystal ball, much as I often go on hot streaks where it may seem like I am… there’s simply no perfect analytical system out there, so eventually the market will hit us with a curve ball, and I don’t want everyone to get burned when it happens. Know your exit when you enter a trade, so if it goes against you, you live to fight another day. Okay, lecture over. 🙂
Before I get into the shorter term projections, I want to take a minute and update the Big Picture chart (this linked article also contains an introduction to Elliott Wave Theory). The chart below shows my long-term projections, which assume my larger count is correct. This has been my count since 2007, and it’s the count I used to anticipate the 2009 bottom, as well as the 2011 top. In other words, it has tracked quite well for several years. Bear in mind that even if my count is perfect, the chart will need to be adjusted somewhat as we go along. Unless the market proves otherwise by violating the 2011 highs, this is ultimately what I believe is coming in the not-too-distant future.
We are now getting closer to the big wave (3) decline, if it hasn’t started already. You can see the black “Alt: 2” annotation which shows how woefully anemic the bullish alternate count would be in the grand scheme of things… assuming my count is correct, of course. Obviously, I believe it is — and I’m favoring this count by a 90% margin at this stage.
The next chart I’d like to share is the Nasdaq 100 (NDX) projection for the upcoming weeks. This projection assumes the bearish wave has indeed started. Obviously, if the bullish alternate count is unfolding, then this projection would be voided for the immediate future. The chart notes two warning signs that there may be more upside left. Note that the sketched-in squiggles are just rough guidelines, not projections. The actual projected target for blue wave (3) is 1920-1950.
The next chart presents a twist on the bullish alternate count, using the S&P 500 (SPX) for form. Keep in mind that we have hit the retracement target expectations of that count, and if it’s unfolding, it could bottom at any time from these levels. Even under the terms of that count, I would expect at least a little more downside, to around 1200-1205. But there are no guarantees of that — as I said, the wave structures are a little screwy right now; this is one reason I’m suggesting everyone take precautions.
The last chart is my best-guess of the short-term SPX wave structures, and it’s annotated with three targets, which equates to four price reversals — so it’s a bold call, but this is what looks most likely at the moment. I’m expecting some upside to start the session today, and then a reversal off the 1215-1225 zone. If the SPX trades above 1227.25, then something else is going on and this chart would need to be adjusted, possibly dramatically — so trade accordingly. The chart also notes that the market’s at a good location for the bullish alternate count to bottom.
In conclusion, as you can see from the big picture chart, I’m quite bearish on the long term. Over the very short term, I believe the market will still make at least one more new low here, although I expect we may see a decent bounce soon. If the short term count shown above is correct, we could have quite a bit of volatility in the upcoming sessions — so prepare for some whipsaws, and trade safe.