In studying the charts tonight, one conclusion is certain: the market has no intention of making this one easy right now. I can see at least half a dozen viable short term counts in the charts tonight. And then, just as I was about to publish this article, I caught something which is potentially very revealing in the Russell 2000 chart… so this article has a lot of charts, and a fair number of short-term possibilities are reflected herein.
I simply need more price information at the moment. The next couple sessions should let me weed some of them out.
Let’s start with something I’m reasonably confident of at the moment: Wednesday’s low won’t hold. The very short term counts are suggesting a possible bounce, and then further declines. That’s my favored view of the very short term. The slightly bigger picture is sloppier, though.
The hunt for the Minor Wave (2) top is still on. The earlier technical breakouts have now whipsawed, and the market is currently set at a potentially important pivot point. Significant follow through to lower prices could lead this market into a deep and extended decline — more on this later. Conversely, if the bulls can reverse the SPX higher before it breaks 1229.51, the projection up to (as high as) 1310 will remain on the table. The one-minute chart shown below highlights the key KO levels for the bull and bear counts shown on this chart. The blue target box represents the expected rebound level for both of these counts.
I want to expand a little on the short-term alternate count shown in passing on the chart above. I have no way of knowing for sure what the market will do tomorrow, so if the recent highs are broken, the chart below shows how the alternate count could unfold.
The reason I’m favoring the count shown above verses the alternate count below revolves around the technical breakouts on low volume and the subsequent whipsaws during Wednesday’s session. Usually, whipsaws lead to strong moves in the opposite direction. Nevertheless, there is no confirmation of either count yet, so I thought readers might find this illustration helpful. The blue wave 2 bottom is the knockout level for this scenario.
The expectation of a large sustained decline is starting to sound like a pipe dream to some bears, but I believe that’s exactly how it needs to be. At several points in the past, I’ve mentioned that if the market is roughly following the 2008 script (which I believe it is), it needed to start throwing some curveballs. The repeat trips back up into the mid-1200’s have certainly thrown many bears off, and have made the counts challenging at times. It sometimes pays to remember that bear markets try to take everybody’s money — even the bears.
Let’s see what else we can discern of the market’s intentions.
The indicator below is one I’ve shared before. It’s a combination of the TRIN and down-volume to up-volume ratio (high levels in this ratio indicate heavy distribution). When the two indicators fire off a signal simultaneously, there are extremely good odds that the market will make a lower low over the coming sessions. On Wednesday, this signal was triggered again (below):
The next chart shows an interesting potential on the Russell 2000 (RUT). The information on this Russell chart is potentially explosive, because it argues that the C-wave many Elliotticians think we’re in the midst of hasn’t even started yet. The Russell counts fairly well as a triple zigzag off the October lows, but argues that the market is forming a b-wave flat in b of (z). This means we’ll have a retest of the December lows, which will fool everyone into going short again, and then launch back up one more time to finally complete Minor (2).
Just in case this isn’t enough charts for everyone, I also want to touch on an alternate count which several readers have asked about. This alternate has the same intermediate-term impact as my preferred big picture count — namely it takes the SPX down below the October lows. But this alternate triangle count wouldn’t entail the devastating drop I ultimately foresee down into the SPX 400’s. I’m not too concerned about this count at this point, because as I see it, we need to see where the exact top comes in first, and see the SPX break the October lows — so I feel this is putting the cart before the horse. But nevertheless, I’m presenting it due to popular demand.
One factor which does fit the count above is that volume has been steadily decreasing since October, but let’s see what happens over the next few sessions before we get too invested in this count.
My conclusion is that the top, if not already in, is much closer than the bottom. We’re trying to sift through the pennies here to nail it down exactly, but my view is that we’re dealing with limited upside potential at these levels (low 1300’s) and major downside potential (below 1000). The rally is starting to look a bit worn overall, and buyers may be reaching exhaustion. Let’s see what information the market gives us over the next few sessions to help eliminate some of these short-term possibilities, and to confirm or deny the potential that the top is already in. Either way, longer-term, I currently see little hope for an extended rally which reaches much beyond the 1310 area. Trade safe.