SPX, NDX, INDU: Did Bulls Drop the Ball on Friday?

By Jason Haver  OCT 08, 2012 9:05 AM

It's too early to say for certain, but here are the key near-term levels.


MINYANVILLE ORIGINAL Bulls had every opportunity to get things done on Friday, but failed to push higher on the better-than-forecast job report.  The market performed properly for the very short-term count, but not quite as expected for the next higher degree wave count.  Certain corrective waves can only be anticipated in real time, since they sometimes form a complete fractal (which leads one to believe they are over), but then go on to string together a couple more fractals before actually finishing.
Near-term prospects may now be shifting into the bears' favor, so I've outlined a series of key levels to watch on the S&P 500 (INDEXSP:.INX).  Be aware that until 1450 and 1439 are claimed by the bears, we can't rule out new swing highs following directly, and trade back above 1471 from here would suggest bulls have several more sessions of strength left in them -- if not more.

Click to enlarge
Due to the fractal nature of Elliott Wave, this pattern leaves a number of potentials open at the moment, so let’s take a look out across a couple more markets before coming back to SPX.

The Dow Jones Industrials (INDEXDJX:.DJI) is suggesting that -- again, assuming new highs don't follow directly -- the current wave is (at worst) part of a larger correction, and new swing highs should ultimately follow.  Depending on what happens next regarding the important price levels, though, bulls may have to wait a while and endure some drawdown if they’re not nimble.

Click to enlarge

As I mentioned last week, a number of markets appeared to be running at cross currents.  Nasdaq 100 (INDEXNASDAQ:NDX) is one such market, and has been much weaker than INDU and SPX (chart below).
Bears should be aware of the fact that if NDX has completed a five-wave structure at red degree, it may have formed a long-term top... or it may only be entering a second-wave decline, to be followed by an explosive rally.  We'll have to see how the structure develops from here.

Click to enlarge
The big picture SPX chart shows one possibility that appears reasonably likely at the moment -- again, watch the key levels outlined in the first 3-minute chart to help determine if new highs are coming more directly.  The blue path shown below comes into play only if those key levels are broken by the bears.

Click to enlarge

The SPX trendline chart -- so far, still no key breaks by bears here.

Click to enlarge
Finally, because the decline appears to be three waves, and the rally appears (so far) to be three waves, there is still the potential for a large triangle to form in this position.  I can only speculate given the current wave structure.

Click to enlarge
In conclusion, the market is likely to see some near-term weakness, and the key levels outlined should give us clues as to how deep that weakness will run.  In any case, it is currently expected that any such near-term weakness will ultimately resolve with higher prices over the intermediate term.  Trade safe.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.