Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

January's Target Zone Has Been Captured. What Next?


SPX has reached the target zone, but as of yet, there are no concrete signs of a turn.

I'm not able to present as many charts today as I would like to because I primarily create my charts using, and the site crashed while I was working. It has remained non-functional for several hours. Fortunately, prior to the site crash, I had already finished the SPX hourly chart. I'd also partially completed a chart of the Philadelphia Bank Index (INDEXDJX:BKX), with at least has enough detail to allow me to fill in the blanks in the body of this article.

On Tuesday, the S&P 500 (INDEXSP:.INX) finally captured my 1520-1530 target zone from January 10. The bottom line now is that we'll simply have to see how the market responds before generating new targets. There are no clear signs of a turn yet, and in fact, there are some indications that this wave may still have farther to run (as shown on the BKX chart to follow). In Elliott Wave Theory, the third wave of a move usually represents the longest and strongest leg. As I wrote in the very first article of the year, on January 2 (SPX and US Dollar: Rally Likely Only Halfway Through):

In conclusion, this is not a rally I would look to short anytime soon. There is massive pent-up energy in the charts, and nested third waves are not to be trifled with. Third waves are the "point of recognition" for the masses, and tend to be strong trending waves that rarely let up for very long. Third waves tend to peg indicators at extreme readings and stay there for much longer than seems reasonable.

Since a picture is worth at least 74 words, if you've ever wondered what a third wave rally looks like up close, we need look no further than the hourly chart below. Do note the more bullish alternate count, which would postpone the blue wave 4 correction. As I've mentioned several times over the past six weeks, I do not advocate front-running against third waves. Once we see our first five-wave impulsive move to the downside, we can feel a little more confident that a correction has begun.

Click to enlarge

I didn't quite finish the BKX chart I was working on when Stockcharts crashed, but I completed enough to convey the general idea. On February 8, I noted two possibilities, and BKX appears to have chosen Door Number 2, behind which was a nest of first and second waves, and a Brunswick pool table (not shown). I've noted the first key bearish overlap on the chart, and unless price is sustained beneath that pivot in the near future, BKX is free to continue trending unabated.

One of the charts I was not able to finish prior to the gremlin attack at Stockcharts was the long-term BKX chart, which shows BXK is now within pennies of a key overlap, at 55.88. If crossed, this would add confidence to the long-term bullish outlook, and leave bears hoping for a triangle consolidation, with two large waves still left to go (we would be in wave c-up now, with d-down and e-up still to come). The triangle would get knocked out at 58.83.

Click to enlarge

In conclusion, the target zone has been captured, but there are no signs of a turn yet, and BKX suggests there may be a bit more room to run. SPX is a bit ambiguous for my liking, so I will publish new targets as they become higher probability. If you've remained long since the beginning of the year, you may be content to simply raise stops until there are more concrete signs of a turn. Trade safe.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
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.
Featured Videos