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.

SPX and RUT Updates: Market Still in the Chop Zone


Odds still favor a new swing high before any larger move gets started.

MINYANVILLE ORIGINAL This remains a yuck market. While one could get lucky and guess exactly right about what's coming next here, I don't think this market is at all clear-cut at the moment. In my opinion, the majority of Elliotticians tend to advance wave degrees too quickly and declare corrections (or impulses) over too soon. If they're bearish, they'll tend to be early on tops and assume the next big wave down has started (I am sometimes guilty of this myself) -- if they're bullish, they'll tend to do the opposite.

Some Elliotticians have assumed that wave (iii) down has started already, and I continue to accept that this is indeed possible -- but I feel it's less likely, again based on the best evidence provided by other indicators. As always, it's all about probabilities... so 60% probabilities will still be wrong four out of 10 times, and a strong break could always show up tomorrow -- but on Friday, I warned that I felt the market was entering a chop zone, and so far that's been the case. Unless it breaks down strongly here, I currently see limited evidence for a higher degree third wave decline yet.

The first chart I'd like to call attention to is the RUT, which again argues for a choppy correction to be followed by new highs. While SPX presents more clearly as a double-zigzag series of ABC's, RUT looks more like a nested (1) (2) series that's in the process of forming wave C. It could still be a double zigzag, but going with the "trade what you see" philosophy, I don't think the double zigzag works as well.

What I especially like about the RUT chart is the clarity of the invalidation level for a fourth wave decline, although keep in mind that this would not invalidate a double zigzag. Bears should watch for a clean break of the rising trendline as a possible sell signal, since most double zigzags will maintain a pretty clean channel.

Whether one calls the RUT pattern a double zigzag or a nested C wave, it is darn near impossible to view the upwards movement as complete. The only way that becomes possible is if one views the first 3-wave-looking structure as a really ugly A wave with an extended fifth. Again, it's always possible... I'm just working off the probabilities here. Also note the gap open off the 820 high that gives bulls a target to aim at.

Click to enlarge

The next chart is the SPX, which could follow a similar path. The complexity of the correction in RUT and SPX isn't required to play out as illustrated; this is simply a SWAG (an educated guess) as to how things might play out. R2 is key resistance on SPX, and sustained trade above 1363/64 would favor the odds of a new high being made more directly.

Click to enlarge

In conclusion, the odds favor further chop with an eventual upwards resolution, to be followed by a major turn lower. Barring that, a strong breakdown of the upward-sloping channel would shift things more immediately into the bears' favor. 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.
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