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SPX Update: Key Price Overlap at 1292 Leaves the Bulls Feeling Thoroughly 'Facebooked'


Facebook was a big dud on Friday, and the price of the S&P 500 has now overlapped a critical price zone.

MINYANVILLE ORIGINAL Friday was a smashing success for my price targets, as the market opened higher and appeared ready to rally, but instead quickly collapsed back into the preferred count's target zone.

But the big news is that a key overlap occurred on Friday, as the S&P 500 overlapped the October high of 1292.66, thereby ruling out the potential of an ultra-bullish Elliott Wave count that would view the October high as Wave 1 of a larger new bull market wave. This is because, under Elliott Wave Theory, wave 1 and wave 4 cannot cross the same price territory (except in certain rare patterns). Therefore, the current decline has ruled out several of the longer-term bullish interpretations of the market.

Regular readers know it's been my opinion all along that this rally was just an extended correction in an ongoing bear market, and Friday's action has gone a long way toward vindicating my long-term outlook. The market is now closing in on retracing almost all the gains of 2012's "monster bull market."

Considering that this came on the back of the much-anticipated Facebook IPO, the disappointing (for bulls) outcome of this situation has left me with the urge to coin a new term:

Facebooked: [feys bookd] verb Facebooking; noun Facebooker

To frustrate, trick, and deprive of something expected:

"Dude, your boss totally Facebooked you out of that promotion!"

Synonyms - swindled, tricked, cheated, bilked

Without a doubt, the bulls definitely got Facebooked on Friday.

The first chart we'll examine is whichever one I upload first. Let's see... Oh yeah, this is a good one. It's the SPX monthly chart, and shows how the market has now broken down through several solid support levels. For some time, I've been talking about 1290-1310 as a level that I believe is critical to the bull case, and the market's there now. Let's see if the bulls can get anything going beyond a quick bounce.

Bears should stay cautious, because if the bulls are going to manage some type of solid counter attack, this is the level from which they should try.

Click to enlarge

Moving onto a chart of support and resistance, we can see that the market has further broken down through a "theoretical' channel drawn by connecting the October/April highs and adding a parallel copy of the line at the November lows. This breakdown is not a particularly bullish sign, and the bulls need to recover this channel quickly.

If all the market can manage here is a bounce back to the lower channel boundary before turning back down, that would be quite bearish. This channel break is another potential sign that seem to verify my preferred outlook of an intermediate trend change.

Click to enlarge

Next up, we have the intermediate targets, which have tracked nicely so far. Back on May 9, my first target for this decline was 1310, and that's been reached. (See: SPX, VIX, Nasdaq, and Chevron: Tuesday's Targets Reached, But Bulls Are Probably in for More Pain.) The next target appears to be 1240-1260. This outlook would need to be re-examined if the bulls can solidly reclaim the 1365-75 area.

Click to enlarge

Next up, I took a crack at deciphering the five-minute charts, but it's a bit fuzzy. These types of declines are similar to parabolic rises, in that the waves become so compacted that they're quite difficult to sort out. At times like this, it's often better to focus on the intermediate projections and the larger key levels (such as 1337, outlined below).

The current expectation is that, regardless of which wave degree this rally is, new lows will ultimately follow.

The chart below second guesses the count I published on Friday (see SPX Update: 81 Points of Profit Captured as the Market Hopes for a 'Facebook Bounce'), which expected blue (3) was nearing completion, and is slightly more bearish than that count. As of the time of this writing, ES (the E-mini S&P futures contract) is up about 10 points, but I never give that too much weight in my analysis. You'll recall that the futures were up seven points when I published on Friday and everyone was excited about the coming Facebooking, yet the market still reversed back down and into the target zone.

I'm sure some of my readers were around for the 2008 crash. In 2008, I was trading ES, but also holding overnight SPX put positions in anticipation of the crash -- and I recall several days where it looked like some type of bottom would be in (based on overnight ES action), and then the cash market would open and tank. ES traders tend to be much more short-term oriented and technical, and focused on things like "due" oversold technical bounces, which become self-fulfilling prophecies to a degree. Cash market traders tend to consist of more "mom and pop" investors who are ready to call their brokers first thing in the morning and say, "I can't stand this anymore, you no-good Facebooker -- get me out NOW!"

So we shall see who wins Monday's battle. I consider this count at least somewhat speculative, and believe that it's crucial to pay attention to the market's behavior near the trend channels and resistance levels to get a feel as to whether it holds any water or not. I will outline some of the key short-term levels in a moment.

Click to enlarge

For contrast, below is Friday's preferred count updated with the current price action. We're in one of those zones where we need to see another larger degree wave to really sort out the counts with higher confidence. As I said, when the minute waves become this compacted, it's hard to sort out one very short-term option from another, so we'll simply have to watch how the market behaves at key levels.

Over the very short-term, the first key horizontal hurdle for bulls is 1300; if they can hold that, then 1307-08 is the next hurdle... above that 1310, and then 1312-13. It's not enough to just break above one of these levels briefly; they need to maintain it. At this point, I assume it goes without saying that the trendchannels are critical as well -- but I'm trying to learn not to "assume it goes without saying."

I view the black alternate count shown below as low probability, but I've been surprised before. If a rally starts to grow legs here, then we might consider that count more seriously. However, Friday's low is one of those lows that you would normally expect to see retested at the minimum.

Click to enlarge

In conclusion, the expectation remains for further downside, and the expectation remains that we've seen an intermediate trend change. Over the short-term, there are a couple paths the market could take to get there, so on Monday it would be wise to pay attention to the key levels outlined. In other words, pay more attention to how the market behaves around those levels than to the blue dotted lines I've drawn on the charts. As I've been warning all month, this type of market can just keep right on grinding lower. Trade safe.

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