The very short-term charts are still a mess. Some personalities feel that an analyst should be able to have a strong opinion on the market at all times — unfortunately, out here in the real world, that’s simply not realistic or possible. Sometimes I have a strong opinion, other times the market dictates a “wait and see” approach.
Personalities who require a high degree of certainty and security are probably not cut out for trading, since the market is an oft-ambiguous place. If you ask your broker, they will most likely tell you that they “don’t try to time the market” so even the majority of brokers are afraid of trying to sort through the potentials. It’s not an easy gig.
Accordingly, I’m going to discuss what I feel reasonably confident in, and what currently appears ambiguous.
Here’s what I’m (almost) certain of:
1. The market will make a new low beneath 1343.
However, there are two issues that I’m simply not certain of:
1. Will the market make a new short-term high first (above 1365)? (I view this as less likely, but not impossible.)
2. Is the corrective rally from 1343 a fourth wave at low degree — or actually the second wave at higher degree? It appears to be a fourth wave, but that’s not as clear-cut as some would like to make it. Very muted second waves at this degree have been known to occur in extremely weak markets; examine the 2011 mini-crash (below) for a recent case-study.
The present challenge, which I’ve alluded to in the past, is that fourth waves will often string together several complete fractals to make up a larger fractal. The rally from 1347 to 1365 was a complete a-b-c fractal, which is what led me to believe that there would be new lows coming beneath the 1347 print low. This happened, of course, and yet because of this tendency of fourth waves, I cannot be absolutely certain that the 1343 low was not still part of the fourth wave.
Further, I simply can’t be certain whether the recent bounce was red wave ii or a continuation of blue (4). It would be very weak for a second wave — but again, see 2011 for examples of why that’s not impossible. On the Dow Jones Industrials, it counts passably-well as blue (4) (see 2nd chart).
At times like this, we’ll simply have to play it by ear as it unfolds.
The Dow counts well enough as a running triangle, but the e-wave looks too impulsive. The same potential ugly wave ii exists here as well. On this chart I’ve labeled the aforementioned fourth wave as the preferred count, for contrast.
The incredibly bearish potential which seems to have been ignored by most is the possibility that this whole decline has been nothing but a nest of 1’s and 2’s. I’ve illustrated this on the RUT below. There has been absolutely nothing to allow this count to be ruled out — and if this is what’s occuring, then the market could decline relentlessly if support fails, so be careful out there.
In conclusion, both counts are ultimately expecting new lows below 1343.
The “obvious” count is that the next low will mark wave (5) and lead to a solid bounce. I’m not 100% sold on that view, however, and I think the market is potentially in a very dangerous position. If support holds, then great: false alarm. If it doesn’t, things could get ugly fast.
I should also mention that it still remains viable that the decline from 1422 will be fully retraced and that an intermediate-term low is nearby — but until the market can reclaim some key levels, or form a more convincing bottom, I’m not giving much air-time to that potential.
I’m sorry that my certainty — beyond expecting new lows — is limited at the moment, but to pretend otherwise would be intellectually dishonest. We’re simply going to have to watch how it develops over the next few sessions to gain further clarity. Trade safe.
Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.