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SPX, NYA, US Dollar, and VIX: Inflection Point at the Edge of the Cliff

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The bears have now pushed the market right to the edge. Whether we go over or not may come down to Washington.

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MINYANVILLE ORIGINAL My last update noted that the market had reached an important inflection point, and that remains true today. It's interesting how the market has aligned itself to react to the news over the next few sessions. Obama cut short his Christmas in Hawai'i (where I reside) to fly back to Washington in order to discuss the fiscal cliff and how to avert falling off it. I keep thinking of a scene from the movie Margin Call, in which Paul Bettany is standing atop the ledge of a skyscraper and says, "The fear most people feel when they stand on the edge like this is not actually a fear that they will fall. Instead it's the subconscious fear that they might jump."

One sometimes wonders which it is for our leaders: the desire to avoid falling... or the other.

In keeping with this theme, bears have taken the S&P 500 (INDEXSP:.INX) right to the edge of its own cliff, and it's now teetering near the important support zone of 1411. After the November bottom, the market suggested a "safe" target zone of 1445-1455 which it reached -- but since then, the market has kept its options open. There is no clear answer just yet as to what its intentions are, but it is worth noting that it found a top within 1 SPX point of my bear count's expectations, then reversed solidly Accordingly, objectively, I'm forced to give the bearish count equal weight for the time being.

Elliott Wave analysis is fractal-based, so when we work with it as a predictive tool, we're often attempting to anticipate the fractal that's being formed, in order to know where it leads. Some fractals are quite clear and "high probability" interpretations. Others are vague and need clarification through the market's next move. This is one that could still go either way.

Below is the bearish interpretation of the fractal, and some keys to watch which will aid in clarifying what this pattern "is or isn't."


Click to enlarge

Next is the most straightforward of the bullish interpretations.


Click to enlarge
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No positions in stocks mentioned.
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