Tuesday, 9/30/14 update

This indicator is now in buy territory (below 1.000), actually it dropped to below 1.000 as of yesterday's close.  The problem here is that the EW pattern is not entirely clear, at least with respect to the ES/SPX.  NYA looks like it might be forming an ending diagonal 5th wave.

Saturday, 9/27/14 update

Listening to and reading the financial commentators in the last couple of days there's the usual blather about corporate earnings, equity valuation levels (not over valued yet is the general opinion - naturally), GDP growth, etc., all leading to the conclusion that there's no need to bail out of equities.  And they might be right.  But there is no doubt that one very important driver of equity prices since 2009 is shutting down, and that's the Fed Reserve money machine.  So from that standpoint it has to be admitted that there is some cause for concern.  The effect of the Fed tapering is pretty obvious in the DX - old bucky has been blowing through the roof and is not showing signs of letting up.  Why? Because the potential return to US$ denominated assets is relatively greater than those elsewhere in the world because there is the anticipation of higher interest rates as a result of Fed tapering.  Which brings us back to the outlook for equities.  For five years now there has been no opportunity for return from the fixed income sector because interest rates have been deliberately suppressed.  Now that equation looks to be changing, and we may be seeing the beginning of a major shift in portfolio asset allocations out of equities and into fixed income vehicles.  Which does not bode well for equity prices.  Less demand = lower price.

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 Since the ATH of Sep 18 the ES/SPX has put in two impulse moves down.  At this point if a significant intermediate term top was established at that high the market has yet to confirm it with a completed 5 wave bear sequence.  Since the rally off Friday morning's low overlapped the low of the 1st down impulse which bottomed on Sep 23, then the ES has either established a nested series of 1st and 2nd waves as in the below chart or the selling is over with a simple zig-zag A-B-C ending at Friday's low.  If we are seeing a nested wave 1-2 series then the market is headed a lot lower and the odds are very good that the Sep 18 ATH is in fact a significant IT top.  If this has been a garden variety correction then new ATH's should be forthcoming in the very near future.

 
If the ES continues lower a level that bears watching is the 1938.25 to 1934.50 area.  The volume profile chart (below) shows a "volume hole" in that area.  Also, it so happens that a .618 retrace of the early Aug through mid Sep rally lands at 1937.75, right at the upper edge of that volume hole.  If the ES powers through that area the race to the exit doors could be on.

Saturday, 9/20/14 update

There is a distinct difference in equity markets as opposed to commodity markets.  In commodity markets the underlying tension between bulls & bears is such that neither side has a long term edge, i.e. neither side will dominate the long term slope of the market.  In the end commodity pricing will reflect the real world underlying demand/supply equation.  Increasing demand leads to higher prices and eventually leads to increased supply, which in turn leads to lower prices and eventually less supply, rinse, repeat.  However, in equities almost the entirety of society wants higher prices - from the financial industry to the politicians to the guy next door.  The exception of course is the very small community of traders who crave bear markets because of their potential for very quick and sizable profits.  So the long term bias in equities is definitely up. 
It's been over 5 years since the Mar '09 lows that followed the '08 crash. The equities markets grind steadily upwards, and every time the EW analysis shows the possibility of a top the market manages to truck on through anyway with extension after extension of the EW count.  As mentioned, the bias is definitely towards north, and the mindless BTFD'ers are right more often then not.  Such is the case at the moment.  Although the EW count would appear to portend a significant top in the offing, it's fairly likely that the expected top is not here quite yet.

Alternate #1

Alternate #2

Intermediate W4 was done at the 1890.25 low of Aug 7.  The rally that ensued had two clear impulse structures into the highs of Aug 26 (labeled Minute W3 in Alternate #1 and Minor W3 in Alternate #2).  Following that the ES/SPX embarked on an over two week long muddied and sideways track into the lows of Sep 14 followed by a thrust into the 2014.50 high of Friday.  That last rally is the tell.  Although the entire sequence since the Intermediate W4 low can potentially be counted as a completed Inter W5 move as in Alternate #2, the problem is that last week's rally is almost certainly a three wave move rather than a five.  The sell off after the Thur/Fri overnight high overlapped the presumed 1st wave high of the move.  So either the rally is over and it's a B wave in an expanded flat as in Alternate #1 or an ending diagonal is in the process of being formed.  If an expanded flat is being formed then wave C of the structure is likely in progress.  Targets here are at the 50% retrace of 1950.50 and (more likely) the .618 retrace of 1936.50.  If an ending diagonal is in play then the target high has to be somewhere south of 2021.00 to fit EW rules.

Saturday, 9/6/14 update

Range bound market the last two weeks with a lower limit of roughly ES 1990 and upper limit roughly ES 2010.  From a short term trading standpoint it's a whipsaw from hell unless you're very nimble.  However it does look like a top is being formed.  Often the first breakout of a range bound market is a head fake, and if the below EW count is correct then that's exactly what will transpire.