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Jason Haver: Two Intermediate Charts With Warnings for Equities Bulls


Two ratio charts that suggest upside may be limited, and the appearance of a new pattern in the Dow Jones Industrial may help unravel the near-term.

There's been no material change in the near-term outlook from the past few updates, but I've discovered an interesting near-term pattern in the Dow Jones Industrial Average (INDEXDJX:.DJI) which may be helpful, and which I'll discuss in a moment.

The near-term question remains the same for the S&P 500 (INDEXSP:.INX): Will there be one more wave up to new highs, or are five waves complete at 1849? I continue to feel the pattern in SPX is too ambiguous to call at micro degree, but feel that the pattern at higher degree suggests a larger correction is pending. I've assembled a couple more indicator charts which seem to back up this thesis.

First up is a ratio chart of SPX:iShares Barclays Aggregate Bond Fund (NYSEARCA:AGG) (equities to bonds), which, in November 2013, pointed to higher equities prices -- but has now reached its price target and is quite overbought on the weekly time frame.

Click to enlarge

Next is another ratio I track, of Volatility S&P 500 (INDEXCBOE:VIX):CBOE Interest Rate 10-Year T-Note (INDEXCBOE:TNX) -- which recently triggered a warning signal. This one doesn't always work (does anything?) and doesn't give signals very often; the advantage is that, historically, it tends to catch larger corrections.

Click to enlarge

Since I'm limited in the number of charts I can publish, I'm going to use the SPDR S&P 500 (NYSEARCA:SPY) as the proxy for SPX today, since this chart details the extended fifth wave count I published in November (and notes that said target was recently captured) -- but it also more clearly outlines the expectations of a retrace/correction from an extended fifth. Note the target correlates to the low 1700s, with potential for the mid-1600s, on SPX.

Click to enlarge

Finally, a look at the near-term via INDU. This pattern suggests two near-term bear wave counts, and one near-term bull count. Though I'm unable to rule out the bull potential, the pattern in INDU gives the odds to the bears for a new low, either directly or indirectly. A direct new low would suggest a bearish 1-2 nest, first target as noted.

Click to enlarge

In conclusion, I'm still inclined to believe the market is close to a larger top, and feel INDU now suggests that bears already have the ball. That said, we still have no confirmation from the wave pattern in SPX, and projecting turns against the prevailing trend is always a tough proposition; this has been especially true against this particular bull market -- so stay nimble, and 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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