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Bulls Dominated US Equities in 2013 -- Will 2014 Be Different?


There is bearish potential in the charts, though more must be done to make it reality.

Well, after a whole year of waiting, the new year has finally arrived. 2014, allegedly. Which means we're now exactly 30 years past George Orwell's ghastly vision of the "future" in 1984. We're 15 years past the Moon leaving Earth's orbit in Space 1999. And we're 13 years past discovering the obelisk near Jupiter in 2001: A Space Odyssey. Frankly, I'm not entirely convinced the calendar's right.

Weren't we all supposed to have flying cars by now? Consider this: In only five more years, Los Angeles will experience a major problem with a band of rogue Nexus-6 replicants from the Off-World Colonies -- and we've yet to train even one single Blade Runner. I suggest we all write our Congresspersons and demand they either get cracking with funding, or they roll back the year to something which better fits our current technology, like 1986.

Speaking of years, 2013 is going to be a tough act to follow for the preferred count, which was rabidly bullish on the very first trading day of 2013 -- and on February 8, 2013, projected a target of 1750 for the S&P 500 (INDEXSP:.INX). November and December 2013 then closed out the year in banner fashion, with seven straight target captures and zero misses, grabbing more than 130 SPX points over those two months. If 2014's preferred counts perform three-quarters as well as last year's, I'll be pleased.

While 2013 started off crystal clear and suggested the beginning of a powerful third wave rally, 2014 is starting off with a bit of ambiguity. We're in a much different portion in the wave structure now, and theoretically, we're presently wrapping up the fourth and fifth waves left over from 2012 and 2013.

Accordingly, the SPX chart below has intermediate bearish potential, but there's been nothing from the market which grants that potential much reality yet. We have a market that's bumping up against trend resistance, and possibly a complete (or nearly complete) wave structure, but no key downside level breaks. The first level for bears to reclaim is the peak of the prior wave (shown as red 3 on this chart), which would rule out the most bullish possibilities.

If the wave count below is correct, then we're approaching an intermediate correction, which would be expected to travel down toward the mid-1600s. Again, presently, this must be treated as a potential, not a sure-fire projection. It's far too early to confirm a turn at this wave degree, as the market has not yet formed an impulsive leg down from the all-time-high, and all uptrend lines remain intact.

Part of trading is knowing when to do nothing. I'll generally take ambiguous trades only if I can find low-risk entries (by buying or selling the retest of a key level, for example). I'll take higher-risk entries if I'm high confidence on direction. But -- and I realize this sounds ridiculously obvious -- I try my best to do nothing if all I'm offered is low-confidence, higher-risk entries.

Click to enlarge

Below is another look at the long-term, but using a different index, the Wilshire 5000 (INDEXNASDAQ:W5000). Note RSI suggests odds are good for a correction, though RSI alone makes no guarantees of depth of said correction. In a perfect world, I'll be able to arrive at some solid targets after the market provides a bit more info -- but as yet, given the present pattern, I cannot even confirm a trend change and it's entirely possible there is another wave up still pending at a micro degree.

Looking at the bullish argument, the Wilshire 5000 has broken out over several trend lines, and bulls will be hoping the next dip is simply a back-test of those lines.

Click to enlarge

The 30-minute SPX chart notes a potential triangle in blue. If this is a true Elliott Wave triangle, then Monday will open with a small bounce that stays below 1838.24, which will then be sold to new lows. Trade above 1837.20 would indicate this is not a true Elliott triangle, but merely a triangle-shaped pattern -- which would thus open up bullish potential.

The market was relatively "easy" to anticipate during November and December 2013, but it goes without saying that not every day in the market is so clear. Such is the case now: It's possible to count the wave from 1767 as complete, but it's ambiguous enough so as to be unclear whether another wave up remains.

Click to enlarge

In conclusion, SPX captured (and slightly exceeded) my November 2013 target. With the market in its present position, there are no new high-probability near-term targets -- but ideally, the next few sessions will add some key information to help determine if we are indeed close to an intermediate trend change, or if the rally has farther to run. In the meantime, trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of Twitter: @PretzelLogic.

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No positions in stocks mentioned.
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