Major Indices Capture First Targets: What Next?
Jason Haver | Dec 24, 2014 10:09AM ET
Since last update, S&P 500 and Dow made new all-time highs, thereby validating the preferred count and completing the first portion of my intermediate thesis. From last Friday :
Most technicians are either still bearish and expecting an imminent top shy of the all-time high, or they're viewing this rally as wave (3) of (something) and expecting a moon-shot. Is it possible that virtually everyone's wrong?
We can now confirm that those expecting a top shy of the all-time high were wrong, at least. Now we try to figure out if we're actually closing in on a top, or if the moon-shot rally will materialize. Let's see what we can glean from the charts.
First off, Russell 2000 has, thus far, fallen just a hair short of making a new high. In a perfect world, I'd still like to see a new high there -- but while we're on that subject, incidentally, we are now into a zone where a failed fifth wave becomes possible. In my experience, the term "failed fifth" is often misused -- for a true failed fifth, there should actually be five waves present in the structure (but the wave fails to make a new high or low, hence "failed fifth.").
Some folks were talking about a failed fifth in RUT back when RUT was near 1150. As I saw it, at that point, RUT did not actually reconcile as a complete five wave structure, but was instead only 3-waves up (i.e.- it was (1)/(2)/(3), or a possible ABC). That's why I never took the failed fifth idea seriously: Without five waves present in the structure, a "failed fifth" isn't a valid potential in the first place. Now, however, there are five waves up in RUT -- so, while a failed fifth wave is still a long shot, at least now it's technically possible.
Ignoring the failed fifth idea for the moment, it's difficult to triangulate the current wave, since there's no clear fourth wave in the structure. I'm drawing my best guess target of 1214-1220 using proprietary formulas, but without a fourth wave to triangulate the count, I can't currently add or subtract any confidence to/from that target.
SPX followed the blue path outlined in the last update. Since it reached a new all time high, and there are enough waves present, we do have to start considering the potential that (5) is complete or nearly so. If we take our cue from RUT, though, then SPX may still need to unwind another fourth and fifth wave.
The decline into the end of the day yesterday was clearly impulsive, but the move into the all-time high was sloppy enough that I can't be sure the decline wasn't simply wave c of an expanded flat. Nevertheless, I'm very marginally favoring the idea that yesterday's decline is the start of red wave (4), and will thus continue at least a bit deeper, perhaps after a small bounce to start the session.
A Christmas Story -- Reflections on What Matters . If you're looking for something that goes a bit beyond the market, it might be worth a read.
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