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SPX, NDX, RUT: November's Upside Targets Captured, and a Look at the Long-Term


Presently, the rally appears clear to continue, but here are the levels to watch. We'll also examine the long-term patterns.

MINYANVILLE ORIGINAL Last update expected the rally to continue. The market obliged and, in the process, finally reached my standing mid-term target zone (from November) of 1445-1455. So far, everything looks reasonably good for a trip toward the next intermediate target of 1490 +/-, but if things seem to be shifting back into the bears' favor, I will try to note that in these updates.

In this update, I want to cover a couple of long-term charts, to try and see where we might be in the big picture. The Russell 2000 (INDEXRUSSELL:RUT) is of particular interest, because at least two of the waves which make up this structure are as close to "unequivocal" as one can ever find. On the chart below, red wave is a pretty clear ABC (or it's I-II, i-ii -- see chart). Further, the wave labeled as red wave iii is almost certainly a corrective wave, which narrows down the pattern options significantly.

If we assume that both i and iii are not five wave forms, then we are left with two fairly high probability patterns: One is called an ending diagonal; the other is a bullish nest of first and second waves.

An ending diagonal consists of five corrective waves, and suggests this is a market in the final thrust upwards before a large, long-term correction unfolds. One nice feature to this pattern is that there is a clear invalidation level: 902.30. Above that level and the 1-2 nest becomes higher probability. Because 1's and 2's lead to third waves (usually the longest and strongest waves), trade above 902.30 would make the pattern ragingly bullish (starring Robert DeNiro), and suggest a market on its way to a long-term nosebleed rally. Both potential target zones are noted on the chart.

I believe the key to sorting the two patterns out is red wave iv. If that wave is wave-c of a running flat (the mega-bullish pattern), then it should be impulsive (five waves down). It appears to be corrective (an ABC), which instead fits the ending diagonal pattern; therefore I'm inclined to give that pattern a slight edge. Both patterns are intermediate bullish, so it's something of a moot point at the moment -- but we'll keep an eye on this going forward.

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Next is the long-term S&P 500 (INDEXSP:.INX), which sports a similar wave structure. The key long-term bull level here is 1551.11.

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Since the market has performed in line with the preferred bullish intermediate wave count all month, I'm going to focus on that count until the market says I shouldn't. The chart below details the bull count, and also notes the alternate bear count. The bear count would find a top soon, but there's really nothing to yet indicate that we should be looking for anything other than a minor top. The caveat is that although the bull count continues to appear quite probable, do note that my November target zone of 1445-55 has now been reached, and thus an added level of caution is in order. Traders may want to raise stops to protect profits.

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The SPX hourly chart includes some additional detail. If the market can sustain trade above the upper black trend line, then that would be a very bullish signal.

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The Nasdaq-100 (INDEXNASDAQ:NDX) has performed admirably since Monday's update, which suggested an immediate low-risk buy opportunity in this index. The preferred count views the current rally as wave (1) up of (c) of iii/c up. It should be fairly easy to protect profits here, since there's now considerable cushion above the buy zone.

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In conclusion, the rally appears to be firing on all thrusters, and barring a dramatic reversal, it is probable that the next targets will be reached. 1411 now appears to be the critical level for bears to put an end to the party. Trade safe.

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