Yesterday went as well as a day can for numerous targets… and while it’s still a bit tricky for the bigger picture, the very short-term charts seem fairly straighforward. I’m going to lead with the short term chart, which expects that SPX is due for a bounce before it makes new lows. After that, we’ll discuss the bigger picture some more. Then we’ll remove our brains from our heads and toss them around like footballs, because they probably won’t be good for much else. I know mine certainly isn’t.
I apologize for the size of the wave iv target zone, but the real blame falls on the market — due to the length of wave iii, there’s a lot of room for wave iv to play around in. It could stop near the wave (4) high, or it could bounce all the way up to fill the gap. Either way, I do expect that new lows will be made after this bounce is over.
The next chart is a conglomerate of markets, and shows that the Trannies are now in a key overlap range, but so far most everything else is still holding the uptrend line off the October lows. (Again, if you right click the chart and select “open in new window” you can bring up the larger chart.)
It’s probably not advisable to get ultra-bearish just yet. I know it’s very tempting after a day like yesterday to go all-in on the short side and throw caution to the wind — but as you can see, the majority of markets are still technically in uptrends.
Yesterday, I talked about the likelihood that this was a wave 4 decline, with new highs to come. That’s still quite possible, but I’m now leaning toward the idea that the 1378 print high may have been more significant. Just barely. Leaning, that is.
After having more time with the NYA chart, I’ve changed the labeling a bit… and under the new labeling, the rally counts as a potentially complete waveform. First the big picture, then the 30-minute chart. The alternate count is shown in black. I’m about 55% to 45% in favor of the red/blue count at the moment.
The next chart is simply a daily chart of the Dow Industrials, which shows some support/resistance lines and takes all the noise out of the count. It also shows how this could now be counted as a complete waveform.
Finally, a look at the SPX 30-minute, and a way to view the waveform as complete in that market.
A couple readers have asked me to elaborate a bit on why yesterday’s revamp of the count was so potentially meaningful. I mentioned it yesterday, but I think the significance was lost on non-Elliotticians. The idea of a triangle in the count is quite significant, because it means that the odds heavily favor that this leg of the rally is the last leg (at least, at this degree). Triangles almost always appear as the penultimate (second to last) wave in a waveform. In other words, we wouldn’t expect to see a triangle in that position if this were in fact the start of an impulsive new bull market.
Now, that said, here are a few thoughts for bears to chew on. The big one that keeps rattling around in my brain is the historical precedent based on the length of time this rally has gone without a major correction. When a new year starts off as strongly as this one did, historically, the odds heavily favor that the year will end higher than where it started. We also have seasonality still at work, arguing against the bear case, at least until May or thereabouts.
So, I’m definitely not advising mortgaging the house right here and throwing your life savings into puts. As I stated earlier, while there are a number of encouraging signs for bears, but there’s still no confirmation of anything — other than a long-overdue correction has finally unfolded.
Again, I’m leaning toward the idea that this is the start of a bigger decline — but, even if that’s correct (in fact, especially if that’s correct) — then there will be plenty of time for bears to make money. The market isn’t going to zero tomorrow. Right now, it’s almost a coin toss in my mind as to whether the 1378 print high is “it.” If you didn’t dip your toe in while I was suggesting the rally was putting in a top (of some form) there — and prices were much higher — it’s probably advisable to sit tight and wait for a bounce or for confirmation… unless you’re a day trader, obviously.
If one looks at the trendlines shown on the many charts above, the majority of markets are either at, or very near, probable support zones.
If this is the start of a much larger decline, confirmation will come eventually, and there will certainly be better setups to trade. In the meantime, there’s the short-term charts to work with. Trade safe.