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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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Next, I'd like to revisit the NYSE Composite (INDEXDJX:NYA), which has in fact made a new yearly high. I remained bullish about this index throughout the recent decline, so while it's always nice to have the opportunity for a little horn-tooting, that's not really my purpose in sharing this chart. The point in this chart is that the rally since November is currently three-waves up, and it made a new yearly high. This is relevant because a three-wave rally in the direction of the prior trend, that also breaks the price extreme of the prior trend, almost always indicates that the trend will eventually continue -- even if a large correction ensues from that point.

This means that, ironically, long-term bears probably do not want to see a continued and immediate move downwards in NYA. While that might be good for bears over the intermediate term, it would likely be long-term bullish -- so, ironically, bears would actually have more hopes for the long-term if a new high were made reasonably directly, in order to complete a five-wave rally.

Normally, we would expect to see a new high rather directly with this fractal, but the fiscal cliff talks may be impacting the waves and could create a more complex correction than usual.


Click to enlarge

Below is the ten-minute NYA chart, which details the three-wave nature of the present move.



In conclusion, the bears have pushed the market very close to a pivot point, and bulls now need to make a stand rather directly to keep their hopes alive. These are the types of trade entries that I consider to be low risk, since there is a nearby price point that conveys information if crossed, and that price point tells me (if nothing else) that "something else is going on" and it's time to exit. That said, I'm primarily a futures trader, and that means I'm not subject to the large overnight gaps which can occur in the cash market.

Bears have a definite shot at taking control, and there are a number of signals right on the cusp of rolling into their favor -- and yet I have a gut feeling that bulls will somehow manage (yet another) stick save here. Ultimately, though, it's up to the market to dictate -- and it seems the outcome of the fiscal cliff talks will weigh into what happens next. So whichever side of the trade you decide to take here, stay nimble -- as this inflection point means both the bull and bear outcomes continue to remain viable. Trade safe.

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No positions in stocks mentioned.
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